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Choosing a licensee from heterogeneous rivals

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  • Creane, Anthony
  • Ko, Chiu Yu
  • Konishi, Hideo

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.

Suggested Citation

  • Creane, Anthony & Ko, Chiu Yu & Konishi, Hideo, 2013. "Choosing a licensee from heterogeneous rivals," Games and Economic Behavior, Elsevier, vol. 82(C), pages 254-268.
  • Handle: RePEc:eee:gamebe:v:82:y:2013:i:c:p:254-268
    DOI: 10.1016/j.geb.2013.07.013
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    More about this item

    Keywords

    Licensing; Technology transfer;

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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