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Choosing a Licensee from Heterogeneous Rivals

  • Anthony Creane

    (Michigan State University)

  • Chiu Yu Ko

    (National University of Singapore)

  • Hideo Konishi

    ()

    (Boston College)

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.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 779.

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Date of creation: 30 Sep 2011
Date of revision: 06 Apr 2013
Publication status: published, Games and Economic Behavior, 82, 254-268 (2013)
Handle: RePEc:boc:bocoec:779
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  1. Sen, Debapriya & Tauman, Yair, 2007. "General licensing schemes for a cost-reducing innovation," Games and Economic Behavior, Elsevier, vol. 59(1), pages 163-186, April.
  2. ehiel, Philippe & Benny Moldovanu & Ennio Stacchetti, 1994. "How (not) to sell nuclear weapons," Discussion Paper Serie B 288, University of Bonn, Germany.
  3. Katharine E. Rockett, 1990. "Choosing the Competition and Patent Licensing," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 161-171, Spring.
  4. Stamatopoulos, Giorgos & Tauman, Tami, 2009. "On the superiority of fixed fee over auction in asymmetric markets," Games and Economic Behavior, Elsevier, vol. 67(1), pages 331-333, September.
  5. 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.
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  7. Anthony Creane & Hideo Konishi, 2007. "The Unilateral Incentives for Technology Transfers: Predation by Proxy (and Deterrence)," Boston College Working Papers in Economics 677, Boston College Department of Economics, revised 19 Jun 2008.
  8. Anthony Creane & Hideo Konishi, 2009. "Goldilocks and the Licensing Firm: Choosing a Partner when Rivals are Heterogeneous," Boston College Working Papers in Economics 720, Boston College Department of Economics.
  9. Zhao, Jingang, 2001. "A characterization for the negative welfare effects of cost reduction in Cournot oligopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 455-469, March.
  10. Philippe Jehiel & Benny Moldovanu, 2000. "Auctions with Downstream Interaction Among Buyers," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 768-791, Winter.
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  12. Kamien, Morton I & Tauman, Yair, 1986. "Fees versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 471-91, August.
  13. Giebe, Thomas & Wolfstetter, Elmar, 2008. "License auctions with royalty contracts for (winners and) losers," Games and Economic Behavior, Elsevier, vol. 63(1), pages 91-106, May.
  14. Lahiri, Sajal & Ono, Yoshiyasu, 1988. "Helping Minor Firms Reduces Welfare," Economic Journal, Royal Economic Society, vol. 98(393), pages 1199-1202, December.
  15. Chun-Hui Miao, 2013. "On The Superiority Of Fixed Fee Over Auction In Technology Licensing," Manchester School, University of Manchester, vol. 81(3), pages 324-331, 06.
  16. Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
  17. Shapiro, Carl, 1985. "Patent Licensing and R&D Rivalry," American Economic Review, American Economic Association, vol. 75(2), pages 25-30, May.
  18. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February.
  19. La Manna, Manfredi M A, 1993. "Asymmetric Oligopoly and Technology Transfers," Economic Journal, Royal Economic Society, vol. 103(417), pages 436-43, March.
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