Partial acquisition and patent licensing in an asymmetric duopoly

Shuai Niu and Meiling Wang

Manchester School, 2022, vol. 90, issue 1, 92-105

Abstract: This paper analyzes partial ownership arrangements in a heterogenous‐goods duopoly market with subsequent two‐part tariff licensing. The equilibrium under patent licensing is inefficient in the sense that there is an excessive concentration of production in the licensor. A partial ownership arrangement, under which the low‐cost firm holds a partial interest in the high‐cost firm, decreases the competitive incentives of the low‐cost firm. In addition, it decreases the equilibrium royalty rate under patent licensing. Both effects contribute to the improvement of the production distribution in the duopoly market. Consequently, a partial acquisition occurring before patent licensing may be both profitable and welfare‐improving.

Date: 2022
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