We study the effect of spillover on extent of licensing of a process innova
tion. With spillover, increasing the number of licenses makes non-licensees
more efficient in addition to increasing competition among licensees. Desp
ite these effects, a patentee of a significant innovation will sell more li
censes when there is spillover. (C) 2001 Elsevier Science B.V. All rights r
eserved.