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License to Be More Innovative

PING LIN
Review of Industrial Organization
Vol. 12, No. 2 (April 1997), pp. 271-278
Published by: Springer
Stable URL: http://www.jstor.org/stable/41798735
Page Count: 8
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License to Be More Innovative
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Abstract

A patent holder may choose to give up its current leading position through patent licensing in order to increase its incentive to innovate further and thus avoid falling behind its rivals in future R&D races. We show that because of this "catching-up" effect, licensing may occur even when it reduces current industry profits. The overall effect of licensing is to slow down the pace of innovation, as it reduces the licensee's incentive to conduct R&D.

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