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Goldilocks and the Licensing Firm: Choosing a Partner when Rivals are Heterogeneous

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  • Anthony Creane

    (Michigan State University)

  • Hideo Konishi

    ()
    (Boston College)

Abstract

Markets are often characterized with firms of differing capabilities with more efficient firms licensing their technology to lesser firms. We examine the effects that the amount of the technology transferred, and the characteristics of the partner have on this licensing. We find that a partial technology transfer can be the joint-profit minimizing transfer; no such transfer then is superior. However, under weakly concave demand, a complete transfer always increases joint profits so long as there are at least three firms in the industry. We also establish a "Goldilocks" condition in partner selection: it is neither too efficient nor too inefficient. Unfortunately, profitable transfers between sufficiently inefficient firms reduce welfare, while transfers from relatively efficient firms increase welfare. However, an efficient firm might not select the least efficient partner, though it is the social-welfare-maximizing partner.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 720.

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Date of creation: 01 Nov 2009
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Handle: RePEc:boc:bocoec:720

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Keywords: licensing; technology transfers;

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References

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  1. Fauli-Oller, Ramon & Sandonis, Joel, 2002. "Welfare reducing licensing," Games and Economic Behavior, Elsevier, vol. 41(2), pages 192-205, November.
  2. Giebe, Thomas & Wolfstetter, Elmar, 2008. "License auctions with royalty contracts for (winners and) losers," Games and Economic Behavior, Elsevier, vol. 63(1), pages 91-106, May.
  3. Baye, Michael R & Crocker, Keith J & Ju, Jiandong, 1996. "Divisionalization, Franchising, and Divestiture Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 86(1), pages 223-36, March.
  4. Creane, Anthony & Konishi, Hideo, 2009. "The unilateral incentives for technology transfers: Predation (and deterrence) by proxy," International Journal of Industrial Organization, Elsevier, vol. 27(3), pages 379-389, May.
  5. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-69, September.
  6. Hernandez-Murillo, Ruben & Llobet, Gerard, 2006. "Patent licensing revisited: Heterogeneous firms and product differentiation," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 149-175, January.
  7. Andrew C. Inkpen, 2000. "Learning Through Joint Ventures: A Framework Of Knowledge Acquisition," Journal of Management Studies, Wiley Blackwell, vol. 37(7), pages 1019-1044, November.
  8. Jay Pil Choi, 2002. "A Dynamic Analysis of Licensing: The "Boomerang" Effect and Grant-Back Clauses," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 203-229, August.
  9. Thomas �stebro, 2002. "Noncapital Investment Costs and the Adoption of CAD and CNC in U.S. Metalworking Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 672-688, Winter.
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Cited by:
  1. Arghya Ghosh & Hodaka Morita, 2012. "Knowledge Transfer and Partial Equity Ownership," Discussion Papers 2012-18, School of Economics, The University of New South Wales.
  2. Anthony Creane & Chiu Yu Ko & Hideo Konishi, 2011. "Choosing a Licensee from Heterogeneous Rivals," Boston College Working Papers in Economics 779, Boston College Department of Economics, revised 06 Apr 2013.

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