Domestic vs. foreign competition with licensing

We show the effects of entry of a domestic firm and a foreign firm on welfare, in presence of licensing. In case of licensing with up-front fixed-fee, domestic entry increases welfare if the technological differences between the firms are not very large, whereas foreign entry increases welfare for moderate technological differences. If licensing occurs with output royalty, domestic entry always increases welfare but foreign entry increases welfare if the technological differences between the firms are not sufficiently small.