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Licensing the Market for Technology

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  • Arora, Ashish
  • Fosfuri, Andrea

Abstract

In technology-based industries, incumbent firms often license their technology to other firms that will potentially compete with them. Such a strategy is difficult to explain within traditional models of licensing. This paper extends the literature on licensing by relaxing the assumption of a monopolist technology holder. We develop a model with many technological trajectories for the production of a differentiated good. We find that competition in the market for technology induces licensing of innovations, and that the number of licenses can be inefficiently large. A strong testable implication of our theory is that the number of licenses per patent holder decreases with the degree of product differentiation.

Suggested Citation

  • Arora, Ashish & Fosfuri, Andrea, 1999. "Licensing the Market for Technology," CEPR Discussion Papers 2284, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2284
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    More about this item

    Keywords

    Licensing; Market Structure; Oligopoly Theory;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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