License or entry with vertical differentiation in duopoly

Masahiko Hattori, Yasuhito Tanaka


We consider choice of options for a foreign innovating firm to license its technology for producing the high quality good to a domestic firm or to enter the market of the domestic country with or without license. Under the assumption of uniform distribution about taste parameters of consumers; when cost functions are linear, if the low quality good's quality is not low, license without entry is optimum; if the low quality good's quality is low, both of entry without license and license without entry are optimum; when cost functions are quadratic, if the high quality good's quality is not high, entry with license is optimum; if the high quality good's quality is high, license without entry is optimum.

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