ENTRY, LICENSING AND WELFARE

We show the welfare effects of entry in presence of technology licensingunder Cournot competition. If the entrant is technologically inferior to that of theincumbent then, though licensing reduces (or completely eliminates) excessive entryfor relatively low entry costs, it creates excessive entry for high entry costs at whichentry would not occur without licensing. While excessive entry under licensing occursfor very low marginal cost of the entrant, there is insufficient entry under licensing forvery high marginal cost of the entrant...