Competition and Innovation in Markets for Technology

Document Type

Article

Publication Date

8-1-2023

Abstract

We examine the impact of product market competition on innovation in markets for technology. An innovator makes an investment in quality-improving innovation that can be licensed to one (targeted licensing) or all (market-wide licensing) product market competitors. Our model points to a U-shaped relationship between competition in licensee product markets and innovation in the market for technology: at low levels of competition, market-wide licensing is optimal, and competition reduces innovation, whereas at high levels of competition, targeted licensing is optimal and competition increases innovation. Our empirical analysis using a large panel of U.S. data provides clear support for these predictions linking competition, innovation, and licensing.

Publication Title

Management Science

First Page Number

4753

Last Page Number

4773

DOI

10.1287/MNSC.2022.4574

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