Working paper

Abuse of Dominance and Licensing of Intellectual Property

Patrick Rey, and David Salant


We examine the impact of the licensing policies of one or more upstream owners of essential intellectual property (IP hereafter) on the variety offered by a downstream industry, as well as on consumers and social welfare. When an upstream monopoly owner of essential IP increases the number of licenses, it enhances product variety, adding to consumer value, but it also intensifies downstream competition, and thus dissipates profits. As a result, the upstream IP monopoly may want to provide too many or too few licenses, relatively to what maximizes consumer surplus or social welfare. With multiple owners of essential IP, royalty stacking increases aggregate licensing fees and thus tends to limit the number of licensees, which can also reduce downstream prices for consumers. We characterize the conditions under which these reductions in downstream prices and variety is beneficial to consumers or society.


Intellectual property; licensing policy; vertical integration; patent pools;

JEL codes

  • L4: Antitrust Issues and Policies
  • L5: Regulation and Industrial Policy
  • O3: Technological Change • Research and Development • Intellectual Property Rights

Replaced by

Patrick Rey, and David Salant, Abuse of Dominance and Licensing of Intellectual Property, International Journal of Industrial Organization, vol. 30, n. 6, 2012, pp. 518–257.

See also

Published in

TSE Working Paper, n. 12-297, April 2012