Technology licensing and collusion

Abstract

AbstractThis paper considers the possibility of technology licensing via fixed‐fee, royalty or two‐part tariff and tacit collusion between firms that produce homogeneous goods under asymmetric cost structures and compete in quantities. In contrast to Lin (1996), all forms of licensing facilitate (obstruct) collusion, if the initial cost difference between the firms is relatively less (more). Technology will always be licensed, and the optimal form of licensing is either fixed‐fee or royalty or two‐part tariff, but collusion may or may not be possible post‐licensing. Welfare decreases after licensing if the firms collude only after licensing but not collude under no‐licensing.