Optimal cross-licensing arrangements: Collusion versus entry deterrence

Jay Pil Choi, Heiko Gerlach

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

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.

Original languageEnglish
Article number103315
JournalEuropean Economic Review
Volume120
DOIs
Publication statusPublished - 2019 Nov

Bibliographical note

Funding Information:
We would like to thank participants in various conferences and seminars for valuable discussions and comments. We are also grateful to the Editor Robert M. Sauer, two anonymous referees and an Associate Editor for constructive comments which greatly improved the paper. This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government ( NRF-2016S1A5A2A01022389 ).

Funding Information:
We would like to thank participants in various conferences and seminars for valuable discussions and comments. We are also grateful to the Editor Robert M. Sauer, two anonymous referees and an Associate Editor for constructive comments which greatly improved the paper. This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government (NRF-2016S1A5A2A01022389).

Publisher Copyright:
© 2019 Elsevier B.V.

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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