Optimal Cross-Licensing Arrangements: Collusion versus Entry Deterrence

Arbeitspapier

This paper analyzes optimal cross-licensing arrangements between incumbent firms in the presence of potential entrants. The optimal cross-licensing royalty rate trades off incentives to sustain a collusive outcome vis-a-vis incentives to deter entry with the threat of patent litigation. We show that a positive cross-licensing royalty rate, which would otherwise relax competition and sustain a collusive outcome, dulls incentives to litigate against entrants. Our analysis can shed light on the puzzling practice of royalty free cross-licensing arrangements between competing firms in the same industry as such arrangements enhance incentives to litigate against any potential entrants and can be used as entry-deterrence mechanism.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 7151

Classification and Topics

• Classification: Wirtschaft ; Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection ; Oligopoly and Other Imperfect Markets ; Innovation; Research and Development; Technological Change; Intellectual Property Rights: General
• Subject: cross-licensing arrangements ; patent litigation ; collusion ; entry deterrence

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Choi, Jay Pil ; Gerlach, Heiko
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/181351
• Last update: 10.03.2025, 11:41 AM CET