Collusion in supply functions under technology licensing

Abstract

We consider an infinitely lived duopoly with asymmetric costs and study the incentives of the firms to collude or compete in supply functions under the possibility of technology licensing. Simulating the subgame-perfect Nash equilibria of alternative industry organizations, we show that licensing makes collusion harder; but it always has a positive effect on the welfares of consumers and the less efficient firm in the duopoly.