Licensing the Market for Technology

Ashish Arora () and Andrea Fosfuri

No 2284, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Licensing; Market Structure; Oligopoly Theory (search for similar items in EconPapers)
JEL-codes: D23 D43 L13 (search for similar items in EconPapers)
Date: 1999-11
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Journal Article: Licensing the market for technology (2003)
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