A Model of Endogenous Market Structure, Innovation, and Licensing in Agricultural Biotechnology
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We develop a model of endogenous market structure and sunk cost R&D investment that allows for the licensing of technology among competitors. Our theoretical model predicts both a greater lower bound to market concentration and higher levels of quality compared to the case without licensing. These result simply that in markets in which licensing and a symmetric R&D costs are prevalent, such as the agricultural biotechnology sector, the ability to license technology generates more concentration among firms but also improves consumer welfare by incentivizing the production of higher quality.