On the diffusion of competing innovations

We consider a model with two patentees of perfect substitute innovations that enable the manufacture of a new product and a competitive pool of potential licensees. Timing of licensing is endogenous. We show that under certain conditions the equilibrium probability that patentees delay licensing in each period is positive and increasing in the common discount factor adopted by innovators and firms. Consequently, more competition in the market for the innovation may induce lower innovation diffusion and lower welfare in the downstream market. We also show that this conclusion does not hold if at least one patentee is an incumbent.