Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, November 20, 2017

Optimal Licensing of Technology in the Face of (Asymmetric) Competition

Cuihong Fan (Shanghai University of Finance and Economics) ; Byoung Heon Jun (Department of Economics, Korea University, Seoul, Republic of Korea) ; Elmar G. Wolfstetter (Department of Economics, Korea University, Seoul, Republic of Korea) offer Optimal Licensing of Technology in the Face of (Asymmetric) Competition.

ABSTRACT: We reconsider the optimal licensing of technology by an incumbent firm in the presence of multiple potential licensees. In a first step we show that competition among potential licensees has a drastic effect on optimal two-part tariff contracts. We then introduce more general mechanisms and design a dynamic mechanism that extracts the maximum industry profit while reducing the potential licensees' payoff to the minimum level that they can assure themselves. That mechanism can be viewed as a generalized "chutzpah" mechanism, generalized because it employs royalties to maximize the industry profit. It awards licenses to all firms and prescribes maximum permitted royalty rates plus positive fixed fees.

http://lawprofessors.typepad.com/antitrustprof_blog/2017/11/optimal-licensing-of-technology-in-the-face-of-asymmetric-competition.html

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