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Choosing a Licensee from Heterogeneous Rivals

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  • Anthony Creane

    (Michigan State University)

  • Chiu Yu Ko

    (National University of Singapore)

  • Hideo Konishi

    ()
    (Boston College)

Abstract

We examine a firm that can license its production technology to a rival when firms are heterogeneous in production costs. We show that a complete technology transfer from one firm to another always increases joint profit under weakly concave demand when at least three firms remain in the industry. A jointly profitable transfer may reduce social welfare, although a jointly profitable transfer from the most efficient firm always increases welfare. We also consider two auction games under complete information: a standard first-price auction and a menu auction by Bernheim and Whinston (1986). With natural refinement of equilibria, we show that the resulting licensees are ordered by degree of efficiency: menu auction, simple auction, and joint-profit maximizing licensees, in (weakly) descending order.

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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 779.

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Date of creation: 30 Sep 2011
Date of revision: 06 Apr 2013
Publication status: published, Games and Economic Behavior, 82, 254-268 (2013)
Handle: RePEc:boc:bocoec:779

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Keywords: licensing; production costs; technology transfer; auction games;

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  1. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
  2. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  3. Katz, Michael L & Shapiro, Carl, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 567-89, August.
  4. Philippe Jehiel & Benny Moldovanu, 2000. "Auctions with Downstream Interaction Among Buyers," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 768-791, Winter.
  5. Jingang Zhao, 1999. "A Characterization of the Negative Welfare Effects of Cost Reduction in Cournot Oligopoly," Working Papers 99-06, Ohio State University, Department of Economics.
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  7. Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
  8. 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.
  9. Anthony Creane & Hideo Konishi, 2007. "The Unilateral Incentives for Technology Transfers: Predation by Proxy (and Deterrence)," Boston College Working Papers in Economics 677, Boston College Department of Economics, revised 19 Jun 2008.
  10. ehiel, Philippe & Benny Moldovanu & Ennio Stacchetti, 1994. "How (not) to sell nuclear weapons," Discussion Paper Serie B 288, University of Bonn, Germany.
  11. Stamatopoulos, Giorgos & Tauman, Tami, 2009. "On the superiority of fixed fee over auction in asymmetric markets," Games and Economic Behavior, Elsevier, vol. 67(1), pages 331-333, September.
  12. Katharine E. Rockett, 1990. "Choosing the Competition and Patent Licensing," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 161-171, Spring.
  13. Anthony Creane & Hideo Konishi, 2009. "Goldilocks and the Licensing Firm: Choosing a Partner when Rivals are Heterogeneous," Boston College Working Papers in Economics 720, Boston College Department of Economics.
  14. La Manna, Manfredi M A, 1993. "Asymmetric Oligopoly and Technology Transfers," Economic Journal, Royal Economic Society, vol. 103(417), pages 436-43, March.
  15. Shapiro, Carl, 1985. "Patent Licensing and R&D Rivalry," American Economic Review, American Economic Association, vol. 75(2), pages 25-30, May.
  16. Lahiri, Sajal & Ono, Yoshiyasu, 1988. "Helping Minor Firms Reduces Welfare," Economic Journal, Royal Economic Society, vol. 98(393), pages 1199-1202, December.
  17. Federico Etro, 2006. "Aggressive leaders," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 146-154, 03.
  18. Kamien, Morton I & Tauman, Yair, 1986. "Fees versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 471-91, August.
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