To merge or to license: implications for competition policy.
by
Ramon Fauli-Oller
University of Alicante
Coauthors: Joel Sandonís (Universidad del País Vasco)

The optimal competition policy when licensing is an alternative to a merger to transfer a superior technology is derived in a differentiated goods duopoly, for the cases of Cournot and Bertrand competition. We show that whenever both royalties and fees are feasible, mergers should not be allowed, which fits the presription of the U.S. Merger Guidelines. When only one instrument is feasible, however, the possibility of licensing cannot be used as a definitive argument against mergers. Finally, under Bertrand competition, a licensing contract is shown to work as a collusive device that could lead to a decrease in social welfare. In those cases, the antitrust agency should forbid licensing.

Date received: May 8, 2000

Copyright © 2000 by the author(s). The author(s) of this document and the organizers of the conference have granted their consent to include this abstract in Atlas Conferences Inc. Document # cafc-15.