Goldilocks and the Licensing Firm: Choosing a Partner When Rivals are Heterogeneous

38 Pages Posted: 2 Sep 2009 Last revised: 12 Oct 2009

Anthony Creane

University of Kentucky

Hideo Konishi

Boston College - Department of Economics

Date Written: August 31, 2009

Abstract

Markets are often characterized with firms of differing capabilities with more efficient firms licensing their technology to lesser firms. We examine the effects that the amount of the technology transferred, and the characteristics of the partner have on this licensing. We find that a partial technology transfer can be the joint-profit minimizing transfer; no transfer then is superior. However, under weakly concave demand, a complete transfer always increases joint profits so long as there are at least three firms in the industry. We also establish a “Goldilocks” condition in partner selection: it is neither too efficient nor too inefficient. Unfortunately, profitable transfers between sufficiently inefficient firms reduce welfare, while transfers from relatively efficient firms increase welfare. However, an efficient firm might not select the least efficient partner, though it is the social-welfare-maximizing partner.

Keywords: Licensing, Technology transfer, strategic competition

JEL Classification: D4, L24, L4

Suggested Citation

Creane, Anthony and Konishi, Hideo, Goldilocks and the Licensing Firm: Choosing a Partner When Rivals are Heterogeneous (August 31, 2009). Available at SSRN: https://ssrn.com/abstract=1465049 or http://dx.doi.org/10.2139/ssrn.1465049

Anthony Creane (Contact Author)

University of Kentucky ( email )

Lexington, KY 40506
United States

Hideo Konishi

Boston College - Department of Economics ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States
617-552-1209 (Phone)
617-552-2308 (Fax)

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