We show the impact of technology licensing on optimal patent policy. Strong patent protection that eliminates imitation may not be the equilibrium outcome in the presence of licensing. Depending on the cost of innovation, licensing may either increase or reduce the strength of the patent protection

This article considers the sale by a research lab of licenses for a cost-reducing innovation. The marginal cost of a firm that wins a license is private information and the acquisition of a license imposes a negative externality on the other firms. The lab's optimal revenue is determined from a...

We show that even if information transmission through an honest outside agency is not possible due to the possibility of collusion between the firms and the outside agency, information transmission is still possible through technology licensing. However, unlike the case of a cost-free honest...