Optimal cross-licensing arrangements: Collusion versus entry deterrence

Jay Pil Choi and Heiko Gerlach

European Economic Review, 2019, vol. 120, issue C

Abstract: This paper analyzes optimal cross-licensing arrangements between incumbent firms in the presence of potential entrants. The optimal cross-licensing royalty rate trades off incentives to sustain a collusive outcome vis-a-vis incentives to deter entry with the threat of patent litigation. We show that a positive cross-licensing royalty rate, which would otherwise relax competition and sustain a collusive outcome, dulls incentives to litigate against entrants. Our analysis can shed light on the puzzling practice of royalty free cross-licensing arrangements between competing firms in the same industry as such arrangements enhance incentives to litigate against any potential entrants and can be used as entry-deterrence mechanism.

Keywords: Cross-licensing arrangements; Patent litigation; Collusion; Entry deterrence (search for similar items in EconPapers)
JEL-codes: D43 L13 O3 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Optimal Cross-Licensing Arrangements: Collusion versus Entry Deterrence (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:120:y:2019:i:c:s0014292119301679

DOI: 10.1016/j.euroecorev.2019.103315

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