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Credibility and Credulity: How Beliefs about Beliefs Affect Entry Incentives


  • Alan Marco

    (Vassar College)

  • Kieran Walsh

    (Federal Reserve Bank of New York)


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.

Suggested Citation

  • Alan Marco & Kieran Walsh, 2007. "Credibility and Credulity: How Beliefs about Beliefs Affect Entry Incentives," Economics Bulletin, AccessEcon, vol. 11(1), pages 1-7.
  • Handle: RePEc:ebl:ecbull:eb-06k00001

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    Cited by:

    1. Anne DuchĂȘne, 2015. "Patent Litigation Insurance," Working Papers 2015-621, Department of Research, Ipag Business School.
    2. Anne DuchĂȘne, 2017. "Patent Litigation Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(2), pages 631-660, June.

    More about this item

    JEL classification:

    • K0 - Law and Economics - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance


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