Farsighted stability in patent licensing: An abstract game approach

This paper analyzes the negotiations made by an external patent holder and potential licensee firms in a new model of patent licensing, assuming that they are all farsighted, and characterizes the symmetric farsighted stable sets. Given a net profit of each licensee firm, a set of outcomes is a symmetric farsighted stable set if and only if, at any outcome in the set, each licensee firm receives the net profit and the number of licensee firms maximizes the patent holder's profit provided that licensee firms obtain the net profits. We also show the close relationship between the symmetric farsighted stable sets and the relative interior of the core. Further, we confirm that the symmetric farsighted stable sets are the absolutely maximal farsighted stable sets (Ray and Vohra, forthcoming) as well as the history dependent strongly rational expectation farsighted stable sets (Dutta and Vartiainen, forthcoming).