Cross-Licensing of Competing Patents as a Facilitating Device.

This paper hypothesizes that, when their products are imperfect substitutes, firms can promote collusion by cross-licensing their competing patents. Cross-licensing is shown to enhance the degree of collusion achieved in a repeated game by credibly introducing the threat of increased rivalry in the market for each firm's product. The paper then examines the consistency of the theory developed with the available evidence. Antitrust implications of the practice of cross-licensing of competing patents are discussed.