FOREIGN COMPETITION WITH LICENSING*

Abstract

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 with fixed fee (output royalty). If the entrant is technologically superior to the incumbent, foreign entry increases domestic welfare for sufficiently large technological differences between the firms under both fixed-fee licensing and royalty licensing.

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