Bertrand vs. Cournot Competition in Asymmetric Duopoly : The Role of Licensing

This paper shows the possibility of higher welfare under Cournot competition in an asymmetric cost duopoly when the firms have the option for technology licensing. We find that if there is licensing with up-front fixed-fee, welfare is higher under Cournot competition compared to Bertrand competition when the initial cost difference of these firms is moderate; but, for very small or very large cost initial cost differences, welfare is higher under Bertrand competition. If licensing occurs with per-unit output royalty, welfare is always higher under Bertrand competition