Title

Commitment and Excess Capacity with Licensing: An Old Debate with a New Look

Department

Economics, Finance, & Quantitative Analysis

Document Type

Article

Publication Date

6-2011

Abstract

The theoretical literature demonstrates that excess capacity is not an equilibrium phenomenon if each firm's marginal revenue decreases with the competitor's output. We show that such a conclusion can be overturned in the presence of technology licensing. We show that in the presence of technology licensing, a firm may hold excess capacity because it increases the benefit from technology licensing.