Licensing of a drastic innovation with product differentiation

We analyze the licensing of a drastic innovation when products are differentiated due to consumer and/or product heterogeneity. We show that an industry insider prefers to divest its production arm and license the new technology as an industry outsider, in which case it can replicate multiproduct monopoly profits. We derive the optimal contracts and the optimal number of licenses by assuming a logit demand system. Optimal number of licenses, quite strikingly, increases when the technology has a higher relative value than a commercialized alternative. This result stands in sharp contrast with the literature on the licensing of a homogenous good

Welfare improving product bans

We formulate a model of vertical differentiation to evaluate the welfare effects of removing a low quality product from the market. The mechanism through which a welfare improvement might arise is simple: Once the low quality low cost alternative is banned, entry into the high quality segment becomes more likely. This in turn may lead to a significant reduction in the price of the high quality product. We find that such a ban might improve aggregate welfare when consumers value the higher quality more, the marginal cost of producing high quality is lower, the price of low quality is higher, and the price sensitivity for high quality is not too high

Economics of collective refusals to supply

This paper examines situations where vertically integrated firms refuse to supply an input to an independent competitor in the downstream market. The treatment of such cases by competition or regulatory authorities is based on the assumption that such outcomes can only arise if there is collusion in the upstream markets. We argue that this is not always the case. In particular, we argue that proper antitrust or regulatory assessment of such cases requires analysis of the nature of competition, the shape and elasticity of the demand curve, the observability of upstream contracts, and even the number of potential downstream competitors