Journal
ECONOMICA
Volume 82, Issue -, Pages 1324-1348Publisher
WILEY-BLACKWELL
DOI: 10.1111/ecca.12141
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Funding
- Faculty of Arts, Ryerson University
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We study how an incumbent patent holder can use licensing strategically to reduce the threat of further entry, through a low royalty. This licensing strategy deters entry by making the terms of future licensing agreements less favourable to potential entrants. Strategic licensing induces a trade-off between a more concentrated market and a lower price. When this strategy is profitable for the patent holder, it is welfare enhancing if and only if the entry cost is high, or the efficiency edge of the technology is significant. Our analysis yields new policy implications (e.g. royalty floor) with respect to strategic licensing.
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