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Endogenous network formation in patent contests and its role as a barrier to entry

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  • MARINUCCI, Marco

    ()
    (Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

  • VERGOTE, Wouter

    ()
    (Facultés universitaires Saint-Louis, CEREC, B-1000 Bruxelles, Belgium and Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)

Abstract

In a setting of R&D co-opetition we study, by using an all-pay auction approach, how collaboration affects strategic decisions during a patent contest, and how the latter influences the possible collaboration network structures the firms can hope to form. The all pay auction approach allows us to 1) endogenize both network formation and R&D intensities and 2) take heterogeneous and private valuations for patents into account. We find that, different from previous literature, the complete network is not always the only pairwise stable network, even and especially if the benefits from cooperating are important. Interestingly, the other possible stable networks all have the realistic property that some firms decide not to participate in the contest. Thus, weak cooperation through network formation can serve as a barrier to entry on the market for innovation. We further show that there need not be any network that survives a well known refinement of pairwise stability, strong stability, which imposes networks to be immune to coalitional deviations.

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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2009068.

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Date of creation: 01 Nov 2009
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Handle: RePEc:cor:louvco:2009068

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Keywords: patent game; networks; R&D cooperation; all-pay auction;

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