Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/181351 
Year of Publication: 
2018
Series/Report no.: 
CESifo Working Paper No. 7151
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
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.
Subjects: 
cross-licensing arrangements
patent litigation
collusion
entry deterrence
JEL: 
D43
L13
O30
Document Type: 
Working Paper
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