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Credibility and Credulity: How Beliefs about Beliefs Affect Entry Incentives

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Author Info
Alan Marco () (Vassar College)
Kieran Walsh () (Federal Reserve Bank of New York)

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Abstract

In this note we investigate the infringement (entry) decision for a firm facing an incumbent patent holder with uncertain patent rights. The entrant risks a dispute by entering, resulting in either a settlement (licensing) or litigation and trial. Using the litigation model described by Priest and Klein, we investigate the expected dispute resolution and its impacts on the entrant's pre-dispute behavior. The primary contribution is to show that the entrant's expectations about the patent holder's beliefs about patent enforceability are a driving factor behind the entry decision. We develop a simple taxonomy of entrant and incumbent types to explain the entry decision.

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File URL: http://economicsbulletin.vanderbilt.edu/2007/volume11/EB-06K00001A.pdf
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Publisher Info
Article provided by Economics Bulletin in its journal Economics Bulletin.

Volume (Year): 11 (2007)
Issue (Month): 1 ()
Pages: 1-7
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:ebl:ecbull:v:11:y:2007:i:1:p:1-7

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Postal: Economics Bulletin, Department of Economics, 414 Calhoun Hall, Vanderbilt University, Nashville TN 37235, USA
Phone: 615-322-2920
Fax: 615-343-8495
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Web page: http://www.economicsbulletin.com

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Related research
Keywords: entry; entry deterrence; patent infringement; patent litigation; patents; uncertainty;

Find related papers by JEL classification:
K0 - Law and Economics - - General
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

References listed on IDEAS
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  1. Schweizer, Urs, 1989. "Litigation and Settlement under Two-Sided Incomplete Information," Review of Economic Studies, Blackwell Publishing, vol. 56(2), pages 163-77, April. [Downloadable!] (restricted)
  2. Michael J. Meurer, 1989. "The Settlement of Patent Litigation," RAND Journal of Economics, The RAND Corporation, vol. 20(1), pages 77-91, Spring. [Downloadable!] (restricted)
  3. Mark A. Lemley & Carl Shapiro, 2005. "Probabilistic Patents," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 75-98, Spring. [Downloadable!] (restricted)
  4. Daughety, Adnrew F & Reinganum, Jennifer F, 1993. "Endogenous Sequencing in Models of Settlement and Litigation," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 314-48, October.
    Other versions:
  5. Marco, Alan C., 2005. "The option value of patent litigation: Theory and evidence," Review of Financial Economics, Elsevier, vol. 14(3-4), pages 323-351. [Downloadable!] (restricted)
    Other versions:
  6. Cooter, Robert D & Rubinfeld, Daniel L, 1989. "Economic Analysis of Legal Disputes and Their Resolution," Journal of Economic Literature, American Economic Association, vol. 27(3), pages 1067-97, September. [Downloadable!] (restricted)
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This page was last updated on 2009-11-16.

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