Optimal licensing of technology in the face of (asymmetric) competition

Abstract

We reconsider the optimal technology licensing by an incumbent firm facing multiple competitors. First, we cover the case of one license and show that competition has a drastic effect on optimal two-part tariffs. We also consider license auctions and design a more profitable dynamic mechanism. Next, we allow the licensor to award multiple licenses and design a dynamic mechanism that extracts the maximum industry profit. It awards licenses to all firms, prescribes maximum permitted royalty rates and positive fixed fees, and is more profitable than other dynamic mechanisms. Finally we show that a slight modification of that mechanism is also optimal for outside patent holders. (c) 2018 Elsevier B.V. All rights reserved.