Intellectual property disclosure as threat
AbstractThis paper models the disclosure of knowledge via licensing to outsiders or fringe firms as a threat, useful in ensuring firms keep their commitments. We show that firms holding intellectual property are better able to enforce agreements than firms that don't. In markets requiring innovation to make a product, IP disclosure presents a more powerful threat than entry by the punishing firm alone. Occasionally, a punishing firm won't be able to translate its intellectual property into a full-blown product, making it impossible for it to enter the cheating firm's market and punish. Even if it can't make a product itself, the punishing firm can always credibly threaten to license the intellectual property it has on hand to someone else. With this intellectual property as a springboard, chances are at least one fringe firm will be able to do the translation, make the product and enter the cheating firm's market. In short, the potential for licensing increases the likelihood of punishment for uncooperative behavior.In the model, firms contract explicitly to ex-change knowledge and tacitly to coordinate the introduction of innovations to the marketplace. We find conditions under which firms can self-enforce both agreements. The enforcement conditions are weaker when (1) firms possess knowledge and (2) knowledge is easily transferable to other firms. The disclosure threat has implications for antitrust law generally, which are considered.
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Bibliographic InfoArticle provided by The International Society for Economic Theory in its journal International Journal of Economic Theory.
Volume (Year): 7 (2011)
Issue (Month): 1 (03)
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Other versions of this item:
- Scott Baker & Pak Yee Lee & Claudio Mezzetti, 2007. "Intellectual Property Disclosure as “Threat”," Discussion Papers in Economics 07/08, Department of Economics, University of Leicester.
- Baker, Scott & Lee, Pak Yee & Mezzetti, Claudio, 2008. "Intellectual Property Disclosure as 'Threat'," The Warwick Economics Research Paper Series (TWERPS) 881, University of Warwick, Department of Economics.
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