We show the impact of technology licensing on optimal patent policy. Strong patent protection that eliminates imitation may not be the equilibrium outcome in the presence of licensing. Depending on the cost of innovation, licensing may either increase or reduce the strength of the patent protection

We show that the common wisdom suggesting higher investment in innovation under a stronger patent protection may not be true if the innovator can license its technology ex‐post innovation. If the initial cost of production is high and the slope of the marginal cost of undertaking innovation is...

We challenge the common wisdom that patent protection (compared to no or weak patent protection) makes the consumers worse off by reducing product-market competition unless it increases innovation significantly. We show that the absence of patent protection may encourage horizontal merger and...