Choosing the Competition and Patent Licensing

This article examines licensing as a means of choosing the competitors which a patentee-monopolist will face in the period after the patent expires. The queue of entrants consists of two firms which differ in their relative 'strengths' as competitors (for example, by size or level of marginal cost). By structuring the industry to be composed of 'weak' competitors, the incumbent is able to prolong its dominant position in the industry after the patent expires. Examples are presented in which the evidence suggests that 'choosing the competition' was an important motivation of the licensor's behavior.