Horizontal licensing and corporate group

Abstract

The paper analyses the role of technology licensing in the age of outsourcing under the existence of the corporate group. By licensing, the firm increases competition in the final product market. The paper considers the impact of outsourcing on the decision to license and the effect on the other players in the marketplace if market participants are members of a group. Licensing will remove the firm’s monopolistic position. Three different regimes of licensing (fixed fee, royalty rate and double rate tariff) and a regime without licensing are considered. The model and results which were considered in Arya and Mittendorf (2006, 2010) are used here and the initial decisions about issuing license are changed by adding companies in group activities. The role of licensing in companies which operate as groups presents additional considerations for regulators shaping patent laws and management. Also, the paper indirectly gives an answer on optimal industrial organization depending on behaviour of market participants.

Keywords

• license
• consolidated profit
• corporate group
• monopoly