Price and quantity competition in an asymmetric duopoly with licensing

By introducing licensing, this study reconsiders the relative dominance of price- and quantity-setting strategies in an asymmetric duopoly. It shows that if the initial cost difference is small or the goods are close substitutes, then both firms will prefer the quantity strategy. Conversely, for the other cases, heterogeneous-strategy equilibrium will appear, under which the low-cost firm will choose a price strategy and the high-cost firm will choose a quantity strategy. With an endogenous mode of market competition, licensing has always proven to be welfare-improving.