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Choosing a Licensee from Heterogeneous Rivals

Author

Listed:
  • 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.

Suggested Citation

  • 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.
    • Handle: RePEc:boc:bocoec:779
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    References listed on IDEAS

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    Cited by:

    1. Fan, Cuihong & Jun, Byoung Heon & Wolfstetter, Elmar G., 2018. "Optimal licensing of technology in the face of (asymmetric) competition," International Journal of Industrial Organization, Elsevier, vol. 60(C), pages 32-53.
    2. Ding, Rong & Ko, Chiu Yu, 2021. "Does licensing improve welfare with rent dissipation?," Economic Modelling, Elsevier, vol. 105(C).
    3. Negoro, Kazuhiro & Matsubayashi, Nobuo, 2021. "Game-theoretic analysis of partner selection strategies for market entry in global supply chains," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 151(C).

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    More about this item

    Keywords

    licensing; production costs; technology transfer; auction games;
    All these keywords.

    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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