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Unilateral technology licensing from an entrant to incumbent monopolist
Published in Economics Bulletin
Volume: 34
Issue: 2
Pages: 1028 - 1037
An incumbent monopolist, tries to deter entry and thus never licenses its technology to any potential entrant. This paper, however shows that the monopolist may license in the technology of the entrant that remains out of the market in the pre-licensing stage. Post-licensing, the entrant actually enters the market, but this reduction in the market share of the incumbent, (paradoxically) increases its post-entry profit. Moreover the entrant can actually subsidize the monopolist to license its technology. Licensing decreases welfare if the monopolist is either a foreign firm (whose profit is totally repatriated) or a domestic firm.
About the journal
JournalEconomics Bulletin
PublisherEconomics Bulletin