Ramon Faulí-Oller and Joel Sandonís

"To merge or to license: implications for competition policy"
JEL codes: D43, D45, L41
Keywords: merger, patent licensing, competition policy

Abstract: 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 fixed fees are feasible, mergers should not be allowed, which fits the prescription of the U.S. Horizontal Merger Guidelines. By contrast, when only one instrument is feasible, be it fixed fees or royalties, the possibility of licenisng cannot be used as a definitive argument against mergers.
Pre-publication pdf copy.