Licensing Schemes in Endogenous Entry

or the exclusivity of licenses, which are usually discussed as the anti-competitive as-
pects of license contracts, are not crucial contract conditions for license holders to earn
monopoly profit.

Furthermore, the number of licensees, i.e., the competitiveness of the downstream
market, does not affect a license holder’s profit. Thus, when there is sufficient number
of potential licensees under free entry, any regulations that affect the pricing of licenses
cannot increase or decrease the social welfare. Policymakers must pay attention to the
competitive environment of potential licensees, especially whether or not entry is free,
when they consider interventions.

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