Patent licensing, bargaining, and product positioning

Innovators who have developed advanced technologies, along with launching new products by themselves, often license these technologies to their rivals. When a firm launches a new product, product positioning is also an important matter. Using a standard linear city model with two firms, we investigate how the bargaining power of the licenser affects the product positions of the firms. We find that the inventor more likely chooses the central position when its bargaining power is weak. We also discuss the welfare implication. We find that the inverse U shape relationship between the bargaining power of the licenser and total social surplus, i.e., neither too strong nor too weak bargaining power of the licensor is optimal.