Choosing a Licensee from Heterogeneous Rivals
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.
|Date of creation:||30 Sep 2011|
|Date of revision:||06 Apr 2013|
|Publication status:||published, Games and Economic Behavior, 82, 254-268 (2013)|
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