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Discussion Paper Details

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Title: Licensing the Market for Technology

Author(s): Ashish Arora and Andrea Fosfuri

Publication Date: November 1999

Keyword(s): Licensing, Market Structure and Oligopoly Theory

Programme Area(s): Industrial Organization

Abstract: In technology-based industries, incumbent firms often license their technology to other firms that will potentially compete with them. Such a strategy is difficult to explain within traditional models of licensing. This paper extends the literature on licensing by relaxing the assumption of a monopolist technology holder. We develop a model with many technological trajectories for the production of a differentiated good. We find that competition in the market for technology induces licensing of innovations, and that the number of licenses can be inefficiently large. A strong testable implication of our theory is that the number of licenses per patent holder decreases with the degree of product differentiation.

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Bibliographic Reference

Arora, A and Fosfuri, A. 1999. 'Licensing the Market for Technology'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2284