Tina Kao

Welfare-Enhancing Mergers Under Product Differentiation

We follow the duopoly framework with differentiated products as in Singh and Vives (1984) and Zanchettin (2006) and examine the welfare effects of a merger between two asymmetric firms. We find that for quantity competition, the merger increases total welfare if the cost asymmetry falls into a specific range. Furthermore, this parameter range widens if the products are closer substitutes. On the other hand, mergers are never welfare enhancing in this setting when firms compete in prices.

Strategic Licensing and Sequential Innovations

We study inventors’ strategic licensing behaviour when there are two generations of technology. The innovations are sequential, with the second invention built on the first. We show that if the market size is large and if the second innovation is relatively significant, the early inventor licenses by royalty and the second-generation inventor licenses by a fixed fee. The results suggest that royalty licensing may be more common in industries characterized by a high degree of cumulativeness in technology. Furthermore, we observe that early inventors license by royalty payments and subsequent inventors license by fixed fees.