Supply Licensing When the Manufacturer Strategically Commits to Invest in R&D
19 Pages Posted: 15 Feb 2014 Last revised: 18 Sep 2020
Date Written: May 4, 2014
Abstract
This paper proposes a strategic reason for a proprietary component supplier to license her technology to a competitor or a manufacturer: her anticipation of the manufacturer's strategic commitment to invest in research and development (R&D). We address this phenomenon with a game theoretic model. Our results show that the manufacturer's full commitment to invest in R&D enables the supplier to license, sell a larger quantity through the supply chain, and charge lower prices than the manufacturer's full commitment not to invest in R&D. These results are robust to the type of demand uncertainty faced by the manufacturer within the class of increasing generalized failure rate (IGFR) distributions.
Keywords: R&D strategy, strategic sourcing, strategic licensing
JEL Classification: C44, D45, O32
Suggested Citation: Suggested Citation