In a vertically separated industry, where the input suppliers have significant market power, not only entry but also the markets (upstream and downstream) with entry possibilities might be a concern to the policy makers. While 'entry in the downstream market only' always increases welfare,...

We show the effects of entry of a foreign firm on domestic welfare in the presence of licensing. If the entrant is technologically inferior to the incumbent, foreign entry increases domestic welfare for intermediate (sufficiently large) technological differences between the firms under licensing...