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On the licensing of a technology with unknown use

Author

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  • Badia, Bruno D.
  • Tumendemberel, Biligbaatar

Abstract

We consider the problem facing the patentee of a technology that may be used to reduce the costs of firms in an industry. The technology's ability to cut costs depends on a use for it being discovered and the patentee has the option of trying to discover the use before licensing the technology to the firms. Should the patentee try? To answer this question, we model the interaction between the patentee and the firms as a game in extensive form. The first move in the game belongs to the patentee, deciding whether to carry a trial. Next, there is a licensing stage, followed by Cournot competition involving licensees and nonlicensees. We show that if a failure leads to the belief that the technology is most likely useless to the firms, then not trying to discover the use is optimal, even if a trial is free of pecuniary costs.

Suggested Citation

  • Badia, Bruno D. & Tumendemberel, Biligbaatar, 2016. "On the licensing of a technology with unknown use," Games and Economic Behavior, Elsevier, vol. 100(C), pages 220-233.
  • Handle: RePEc:eee:gamebe:v:100:y:2016:i:c:p:220-233
    DOI: 10.1016/j.geb.2016.09.014
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    References listed on IDEAS

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    1. Morton I. Kamien & Yair Tauman, 1986. "Fees Versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, Oxford University Press, vol. 101(3), pages 471-491.
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    5. Michele Boldrin & David K. Levine, 2013. "The Case against Patents," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 3-22, Winter.
    6. Kamien, Morton I., 1992. "Patent licensing," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 11, pages 331-354 Elsevier.
    7. Joseph Farrell & Carl Shapiro, 2008. "How Strong Are Weak Patents?," American Economic Review, American Economic Association, vol. 98(4), pages 1347-1369, September.
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    10. Schmitz, Patrick W., 2002. "On Monopolistic Licensing Strategies under Asymmetric Information," Journal of Economic Theory, Elsevier, vol. 106(1), pages 177-189, September.
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    More about this item

    Keywords

    Process innovation; Patent licensing; Cournot competition;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D45 - Microeconomics - - Market Structure, Pricing, and Design - - - Rationing; Licensing
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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