Innovation Seminar Series

Cross-Licensing Agreements, Technological Improvements and Firms’ Incentives

Presented by Seyed Hamzeh Hosseini Pozveh, Ph.D. Candidate, Department of Bioresource Policy, Business & Economics, University of Saskatchewan

Abstract

In this paper we analyze cross-licensing (CL) agreements leading to technological improvement for the products of two asymmetric firms producing differentiated products. Technological improvement can take the form of the reductions in disutility costs of the products (type I) or an increase in willingness to pay for all consumers (type II). We show using the Hotelling framework that the incentives of the firms to sign a CL agreement depend upon the types of technological improvements or the location of firms in the market. In addition, we find that the ability of the firms to set royalties depends on the types and level of technological improvements after CL. That is not all CL agreement can include royal-ties. The rationale behind our models is discussed with the use of agriculture biotechnology industry.