License Fees in Oligopoly When Outside Innovator can Enter the Market: Two-Step Auction

Abstract

When an outside innovating firm has a cost-reducing technology, it can sell licenses of its technology to incumbent firms, or enter the market and at the same time sell licenses, or enter the market without license. We examine the definitions of license fees in such situations under oligopoly, one outside innovating firm and several incumbent firms, considering threat by entry by the innovating firm using a two-step auction.