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...

It is usually believed that innovation increases profits of the firms and alsosocial welfare. In a duopoly model with product innovation, we show that both thesebelieve may go wrong. We show that if the cost of innovation is not very large,prisoner’s dilemma occurs under product innovation,...