Shows that partial backward ownership influences licensing profitability in vertical markets, indicating new strategies for firms.
Drastic innovation, which eliminates rivals via cost advantages, is typically considered unprofitable to license. This paper revisit drastic innovation licensing in a vertical market with backward ownership. Contrary to conventional wisdom, we show that sufficient partial backward ownership makes licensing of drastic innovation profitable: fixed‐fee licensing is preferred when the licensor holds upstream equity, while royalty licensing is optimal when the licensee does.
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Shang et al. (2026) studied this question.
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