Licensing and Collusive Behavior: A Duopoly Game

24 Pages Posted: 15 Apr 2022

See all articles by Ted Lindblom

Ted Lindblom

Göteborg University - School of Business, Economics and Law

Aineas Mallios

University of Gothenburg

Stefan Sjögren

University of Gothenburg - Centre for Finance - School of Business, Economics and Law

Date Written: April 3, 2022

Abstract

We examine the role of licensing agreements in facilitating collusive behavior. The focus is on how technology transfer is used to influence product market behavior, market prices and quantities and the welfare effects thereof. Although collusion often leads to less production, technology sharing of nondrastic, but sufficiently large, innovations can increase welfare in an industry characterized by diseconomies of scale. We identify licensing agreements that will lead to an aggregate industry quantity output under collusion equal to or higher than that achieved under Cournot competition, making consumers indifferent to whether firms cooperate or better off, as well as to an increased producer surplus because of improved production efficiency. Most important, we show how licensing fees can be constructed so that no parties would like to deviate from a collusive equilibrium. Stability of collusion has policy implications for competition authorities as it provides an explanation for why licensing agreements are often observed in highly concentrated industries characterized by significant diseconomies of scale relative to demand.

Keywords: Oligopolistic competition, collusive behavior, cooperative behavior, collusion, licensing, technology transfer, increasing production costs, repeated game.

JEL Classification: L13, L24, L41

Suggested Citation

Lindblom, Ted and Mallios, Aineas and Sjogren, Stefan, Licensing and Collusive Behavior: A Duopoly Game (April 3, 2022). Available at SSRN: https://ssrn.com/abstract=4073938 or http://dx.doi.org/10.2139/ssrn.4073938

Ted Lindblom

Göteborg University - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden
+46317861497 (Phone)
+46317864492 (Fax)

HOME PAGE: http://www.cff.handels.gu.se/faculty-presentation/ted-lindblom/

Aineas Mallios (Contact Author)

University of Gothenburg ( email )

Vasagatan 1
Goteborg, 40530
Sweden

Stefan Sjogren

University of Gothenburg - Centre for Finance - School of Business, Economics and Law ( email )

Viktoriagatan 30
Göteborg, 405 30
Sweden

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
17
Abstract Views
112
PlumX Metrics