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Intellectual Property Disclosure as “Threat”

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  • Scott Baker

    ()

  • Pak Yee Lee

    ()

  • Claudio Mezzetti

    ()

Abstract

This paper models the disclosure of knowledge as a "threat", useful in ensuring firms keep their commitments. We show that firms holding knowledge are better able to enforce agreements than firms that don’t. In markets requiring innovation to make a product, disclosure is a more powerful threat than entry by the punishing firm alone. Occasionally, the punishing firm won’t be able to innovate, making it impossible for it to enter the cheating firm’s market and punish. The punishing firm, however, can through disclosure credibly ensure that one, if not many, firms enter the cheating firm’s market. In the model, firms contract explicitly to exchange 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 implication for antitrust law generally, which are considered.

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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 07/08.

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Date of creation: Aug 2007
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Handle: RePEc:lec:leecon:07/8

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  15. Sudipto Bhattacharya & Sergei Guriev, 2005. "Patents vs trade secrets: knowledge licensing and spillover," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 444, London School of Economics and Political Science, LSE Library.
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