DP10941 Cross-Licensing and Competition

Author(s): Doh-Shin Jeon, Yassine Lefouili
Publication Date: November 2015
Keyword(s): antitrust and intellectual property, collusion, cross-licensing, royalties
JEL(s): D14, F13, L24, L41, O34
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10941

We study bilateral cross-licensing agreements among N (>2) competing firms. We find that the industry-profit-maximizing royalty can be sustained as the outcome of bilaterally efficient agreements. This holds regardless of whether agreements are public or private and whether firms compete in quantities or prices. We extend this monopolization result to a general class of two-stage games in which firms bilaterally agree in the first stage to make each other payments that depend on their second-stage non-cooperative actions. Policy implications regarding the antitrust treatment of cross-licensing agreements are derived.