Licensing process innovations when losersʼ messages determine royalty rates

Incentives for process innovations under discrete structural alternatives of competition policy

“…At the same time without additional assumptions, we cannot say whether the new profit of the 'first', innovative, firm exceeds its profit in the basic situation a la Cournot. To provide a benchmark for future comparisons, we introduce ̅ as a threshold-the maximal amount M that the first firm can invest to obtain a positive result from the innovation in terms of profit 6 . This interpretation of incentives to invest is similar to the approach from Tirole (1994, p. 391).…”

“…That is why only the investment threshold of the first firm should be taken into consideration in this situation, when we estimate the possibility of the innovation. However, to assess consequences of the Situation I we can compare total surpluses: 6 We don't pretend here to the development of the theory of thresholds for investments decision in process innovation in terms of availability of information for innovator, follower and/or regulator. Also we don't develop idea about interrelation between probability of process innovation with particular attributes and amount of threshold investments.…”

“…The actual outcomes of this situation in terms of profits will differ from the expected results, being equivalent to Situation I (technological leadership), because of the emergence of the leader ex interim 9 . Quantities and price will be set by (5) and (6), and profits by (7) and (8) with one exception: both firms will invest M in R&D and, consequently, total profits from (8) will be diminished not by M but by 2M, and the profits of each firm will be diminished by M.…”

“…Further developments in this area have led to a much more detailed elaboration of particular licensing mechanisms: auctions, fixed-fee-based or royalty-based licensing agreements and the effects of their use, especially from the theoretical point of view (Kamien, Tauman, 2002;Fan et al, 2013;Yan et al, 2012).…”

Incentives for Process Innovations Under Discrete Structural Alternatives of Competition Policy

“…To provide a benchmark for future comparisons, we introduce ̅ as a threshold-the maximal amount M that the first firm can invest to obtain a positive result from the innovation in terms of profit 6 . This interpretation of incentives to invest is similar to the approach from Tirole (1994, p. 391).…”