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Choosing the partners in the licensing alliance

  • Soo Jeoung Sohn

    (Department of Economics, Sungkyunkwan University, Seoul 110-745, South Korea)

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    I consider a situation in which the incumbent strategically adopts the licensing alliance, facing potential entrants. The queue of entrants consists of two firms, the 'strong' entrant and the 'weak' entrant, who differ in their productivities. The incumbent sets a licensing fee and offers it to the entrants. Each entrant decides whether or not to buy the licensing alliance. After the set of the licensing alliance is determined, they engage in the Cournot competition. I examine the optimal licensing fee, and show that the optimal licensing fee is to charge a discriminatory royalty to each licensee. I also examine the licensing policy on the partner(s): To whom should the licensor license its technology? By comparing the equilibrium expected payoffs for the licensor, I show that licensing to both entrants would be preferred to licensing to a single entrant. But, if the licensor faces the problem on choosing the partner, he prefers the licensing of the weak entrant to the strong entrant. Copyright © 2006 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/mde.1253
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    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 27 (2006)
    Issue (Month): 4 ()
    Pages: 251-260

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    Handle: RePEc:wly:mgtdec:v:27:y:2006:i:4:p:251-260
    Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    1. Barla, Philippe, 1997. "Firm Size Inequality and Market Power," Cahiers de recherche 9714, Université Laval - Département d'économique.
    2. Fauli-Oller, Ramon & Sandonis, Joel, 2002. "Welfare reducing licensing," Games and Economic Behavior, Elsevier, vol. 41(2), pages 192-205, November.
    3. Sang-Seung Yi, 1998. "Whom to license patented technology," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(3), pages 189-195.
    4. 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.
    5. Bousquet, Alain & Cremer, Helmuth & Ivaldi, Marc & Wolkowicz, Michel, 1998. "Risk sharing in licensing," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 535-554, September.
    6. Morton I. Kamien & Yair Tauman, 1984. "Fees Versus Royalties and the Private Value of a Patent," Discussion Papers 583, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Almeida Costa, Luis & Dierickx, Ingemar, 2002. "Licensing and bundling," International Journal of Industrial Organization, Elsevier, vol. 20(2), pages 251-267, February.
    8. Lin, Ping, 1996. "Fixed-Fee Licensing of Innovations and Collusion," Journal of Industrial Economics, Wiley Blackwell, vol. 44(4), pages 443-49, December.
    9. Katharine E. Rockett, 1990. "Choosing the Competition and Patent Licensing," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 161-171, Spring.
    10. Pastor, Maite & Sandonis, Joel, 2002. "Research joint ventures vs. cross licensing agreements: an agency approach," International Journal of Industrial Organization, Elsevier, vol. 20(2), pages 215-249, February.
    11. Choi, Jay Pil, 1996. "Technology Transfer with Moral Hazard," Economics Series 22, Institute for Advanced Studies.
    12. Nancy T. Gallini & Brian D. Wright, 1990. "Technology Transfer under Asymmetric Information," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 147-160, Spring.
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