95 / 2024-04-19 19:43:44

From Innovation to Market: A Competitive Analysis of R&D, Licensing and Product Strategies

R&D

This paper examines the strategic interplay between research and development (R&D), licensing, and product strategies in competitive markets, in a multistage game-theoretical model. Firms compete both in the downstream product market and upstream R&D activities for new technologies used for developing new consumer product, while there exist cooperation opportunities from inter-firm licensing of new technologies. We investigate how varying consumer preferences for uniqueness (the “snob effect”), differential R&D efficiencies among firms, and the presence of older, alternative technologies influence strategic decisions from R&D investment to product pricing and market entry. We identify diverse strategies that firms should adopt in licensing agreements and explore their impacts on competitive dynamics and firm profitability. Our findings suggest that licensing between competing firms can have a paradoxical effect on the market leader, potentially damaging profitability despite enhancing a competitive advantage in R&D. Our study highlights the nuanced trade-offs firms face in multi-stage competition, and provides insights into the optimal strategic paths for firms with differentiated product qualities and technological capabilities.