Goldilocks and the licensing firm:Choosing a partner when rivals are heterogeneous

We consider how the amount of the technology transferred and the characteristics of the partneraffect licensing. We find that a partial technology transfer can be the joint-profit minimizingtransfer, though under weakly concave demand, a complete transfer always increases joint profitif there are at least three firms. We establish a “Goldilocks” condition in partner selection: theoptimal licensee is neither too efficient nor too inefficient. Profitable transfers betweensufficiently inefficient firms reduce welfare, though a transfer from a sufficiently efficient firmincreases welfare. When making a complete transfer the efficient firm tends to select aninsufficiently inefficient partner....