Technology sharing and tacit collusion

Abstract

I study the prospects for collusion between rival firms that share technological know-how. Two common forms of technology sharing are compared: a research joint venture (RJV) and licensing. Under licensing, firms can use the licensing fee to elicit higher levels of R&D than with an RJV. However, firms must also be induced to license innovations ex post. For a broad set of cases, licensing yields higher collusive profits to firms and higher prices to consumers. In other cases, licensing can only be induced through a very high license fee, leading to excessive R&D and lower profits. In these cases, the colluding firms prefer to share technology through an RJV.