Patent protection and R&D investment in a differentiated cournot duopoly with technology licensing

Abstract

In this paper, we develop a differentiated Cournot duopoly model to investigate the impact of patent protection on a firm’s R&D investment in the presence of two-part tariff licensing. The result shows that the innovator’s R&D investment can be maximized at an intermediate patent protection under two-part tariff licensing, whereas it is always maximized at the strongest patent protection without licensing. Furthermore, the result also demonstrates that two-part tariff licensing can lead to an increase in social welfare, regardless of the degree of patent protection taken by the innovator, but whether it can increase the innovator’s R&D investment mainly depends on its R&D efficiency and product differentiation of the two firms

Keywords:

• R&D investment
• Technology licensing
• Patent protection
• R&D efficiency
• Social welfare