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To Merge or to License: Implications for Competition Policy

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  • Faulí-Oller, Ramon
  • Sandonís, Joel

Abstract

The optimal competition policy when licensing is an alternative to a merger, which has the intention of transferring a superior technology, and is derived in a differentiated goods duopoly, as in the cases of Cournot and Bertrand competition. We show that whenever both royalties and fixed fees are feasible, mergers should not be allowed, which fits the prescription of the US Horizontal Merger Guidelines. In contrast, when only one instrument is feasible, be it fixed fees or royalties, the possibility of licensing cannot be used as a definitive argument against mergers.

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  • Faulí-Oller, Ramon & Sandonís, Joel, 2001. "To Merge or to License: Implications for Competition Policy," CEPR Discussion Papers 2740, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2740
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    Citations

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    Cited by:

    1. Bouguezzi, Fehmi & EL ELJ, Moez, 2009. "Vertical Integration and Patent Licensing in Upstream and Downstream Markets," MPRA Paper 22212, University Library of Munich, Germany.
    2. Manel Antelo, 2004. "Simultaneous signaling and output royalties in licensing contracts," Economic Working Papers at Centro de Estudios Andaluces E2004/53, Centro de Estudios Andaluces.
    3. Marie-Laure Cabon-Dhersin & Rim Lahmandi-Ayed, 2011. "R&D Organization: Cooperation or Cross-Licensing?," Recherches économiques de Louvain, De Boeck Université, vol. 77(1), pages 31-52.
    4. Lemarié, S., 2005. "Vertical integration and the licensing of innovation with a fixed fee or a royalty," Working Papers 200517, Grenoble Applied Economics Laboratory (GAEL).
    5. Brunner, Philipp & Letina, Igor & Schmutzler, Armin, 2024. "Research joint ventures: The role of financial constraints," European Economic Review, Elsevier, vol. 165(C).
    6. Jesús Mario Bilbao & Nieves Jiménez & Jorge Jesús López, 2004. "A note on a value with incomplete communication," Economic Working Papers at Centro de Estudios Andaluces E2004/55, Centro de Estudios Andaluces.
    7. Chen, Hsiao-Chi & Liu, Shi-Miin, 2016. "Should ports expand their facilities under congestion and uncertainty?," Transportation Research Part B: Methodological, Elsevier, vol. 85(C), pages 109-131.
    8. Straume, Odd Rune, 2003. "Managerial delegation and merger incentives," Working Papers in Economics 04/03, University of Bergen, Department of Economics.
    9. Neelanjan Sen & Priyansh Minocha & Arghya Dutta, 2023. "Technology licensing and collusion," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(3), pages 694-752, September.
    10. Nisvan Erkal, 2005. "Optimal Licensing Policy in Differentiated Industries," The Economic Record, The Economic Society of Australia, vol. 81(252), pages 51-60, March.
    11. Changying Li & Junmei Wang, 2010. "Licensing a Vertical Product Innovation," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 517-527, December.
    12. Ramón Faulí-Oller & Joel Sandonís, 2001. "To Merge Or To License: Implications For Competition Policy," Working Papers. Serie AD 2001-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    13. Bakaouka, Elpiniki & Milliou, Chrysovalantou, 2018. "Vertical licensing, input pricing, and entry," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 66-96.
    14. Miguel González-Maestre & Diego Peñarrubia, 2005. "Innovation, merger policy and technology transfer," Investigaciones Economicas, Fundación SEPI, vol. 29(1), pages 181-201, January.
    15. Andrew F. Daughety, 2006. "Cournot Competition," Vanderbilt University Department of Economics Working Papers 0620, Vanderbilt University Department of Economics.
    16. Li, Changying & Geng, Xiaoyan, 2008. "Licensing to a durable-good monopoly," Economic Modelling, Elsevier, vol. 25(5), pages 876-884, September.
    17. Ramón Faulí-Oller & Joel Sandonís Díez, 2003. "On The Competitive Effects Of Vertical Integration Under Product Differentiation," Working Papers. Serie AD 2003-31, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    18. Li, Changying & Ji, Xiaoming, 2010. "Innovation, licensing, and price vs. quantity competition," Economic Modelling, Elsevier, vol. 27(3), pages 746-754, May.
    19. Li, Changying & Song, Juan, 2009. "Technology licensing in a vertically differentiated duopoly," Japan and the World Economy, Elsevier, vol. 21(2), pages 183-190, March.

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    More about this item

    Keywords

    Merger; Patent licensing; Competition policy;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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