A Cross-Licensing System Discourages R&D Investments In Completely Complementary Technologies

We consider the research and development (R&D) investment com petition of duopolistic firms in completely complementary technologies. By "completely complementary technologies," we mean that no firm can produce the goods without both of the technologies. We derive the investments competition equilibria in R&D of the two completely complementary technologies with and without a cross-licensing system. By comparing R&D investment levels in the two equilibria, we show that the cross-licensing system discourages the R&D invest ments when the duopolistic firms produce goods by using the two completely complementary technologies.