Accessible Requires Authentication Published by De Gruyter August 7, 2019

Believe It or Not: Strategic Licensing Makes R&D Alliance Profitable

Tannista Banerjee and Aditi Sengupta

Abstract

We consider a market where firms (that compete in the product market) invest in the research and development (R&D) activities with no guaranteed success and engage in a patent race for intellectual property rights. We analyze the effects of a strategic (ex ante) licensing contract on the equilibrium investment behavior of competing firms that form a research and development (R&D) alliance to win a patent race. We show that the R&D alliance members that sign strategic licensing contract invest more in the R&D and earn higher expected profits compared to the firms in an R&D cartel and R&D joint venture cartel without any strategic licensing as well as the firms that aggressively compete in the innovation market to win the patent race.

JEL Classification: L24; O31; O38

References

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Published Online: 2019-08-07

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