Auctioning Process Innovations when Losersâ€™ Bids Determine Royalty Rates
AbstractWe consider a licensing mechanism for process innovations that combines a license auction with royalty contracts to those who lose the auction. Firmsâ€™ bids are dual signals of their cost reductions: the winning bid signals the own cost reduction to rival oligopolists, whereas the losing bid influences the beliefs of the innovator who uses that information to set the royalty rate. We derive conditions for existence of a separating equilibrium, explain why a sufficiently high reserve price is essential for such an equilibrium, and show that the innovator generally benefits from the proposed mechanism.
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Bibliographic InfoPaper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 291.
Date of creation: Dec 2009
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Patents; licensing; auctions; royalty; innovation; R&D; mechanism design;
Find related papers by JEL classification:
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D44 - Microeconomics - - Market Structure and Pricing - - - Auctions
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-01-23 (All new papers)
- NEP-CTA-2010-01-23 (Contract Theory & Applications)
- NEP-INO-2010-01-23 (Innovation)
- NEP-IPR-2010-01-23 (Intellectual Property Rights)
- NEP-TID-2010-01-23 (Technology & Industrial Dynamics)
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