| Abstract: | This paper finds that in a linear Stackelberg duopoly model, the follower is more likely to license a cost-reducing innovation to the leader than the leader is to the follower, regardless of whether licensing is in the form of a fixed fee or royalty per unit of output. Under fixed-fee licensing, the follower gains more from small innovations while the leader gains more from large non-drastic innovations. Under royalty licensing, the follower always gains more than the leader from an innovation. |
