Choosing a licensee from heterogeneous rivals

We examine a …rm that can license its production technology to a rival when …rms are heterogeneous in production costs. We show that a complete technology transfer from one …rm to another always increases joint pro…t under weakly concave demand when at least three …rms remain in the industry. A jointly pro…table transfer may reduce social welfare, although a jointly pro…table transfer from the most e¢ cient …rm always increases welfare. We also consider two auction games under complete information: a standard …rst-price auction and a menu auction by Bernheim and Whinston (1986). With natural re…nement of equilibria, we show that the resulting licensees are ordered by degree of e¢ ciency: menu auction, simple auction, and joint-pro…t maximizing licensees, in (weakly) descending order.