CROSS-LICENSING OF COMPETING PATENTS AS A FACILITATING DEVICE

This paper hypothesizes that, when their products are imperfect substi tutes, firms can promote collusion by cross-licensing their competing patents. Cross-licensing is shown to enhance the degree of collusion a chieved in a repeated game by credibly introducing the threat of incre ased rivalry in the market for each firm's product. The paper then exa mines the consistency of the theory developed with the available evide nce. Anti-trust implications of the practice of cross-licensing of com peting patents are discussed.