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

Author

Listed:
  • 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.

Suggested Citation

  • MARINUCCI, Marco & VERGOTE, Wouter, 2009. "Endogenous network formation in patent contests and its role as a barrier to entry," CORE Discussion Papers 2009068, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2009068
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    Cited by:

    1. Emmanuel Petrakis & Nikolas Tsakas, 2016. "The effect of entry on R&D networks," University of Cyprus Working Papers in Economics 08-2016, University of Cyprus Department of Economics.
    2. Miettinen, Topi & Poutvaara, Panu, 2014. "A market for connections," European Journal of Political Economy, Elsevier, vol. 33(C), pages 37-52.
    3. Grandjean, G. & Tellone, D. & Vergote, W., 2017. "Endogenous network formation in a Tullock contest," Mathematical Social Sciences, Elsevier, vol. 85(C), pages 1-10.
    4. Grandjean, G. & Tellone, D. & Vergote, W., 2016. "Cooperation, Competition and Entry in a Tullock Contest," CORE Discussion Papers 2016032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Alexander Matros & David Michael Rietzke, 2017. "Contests on Networks," Working Papers 156630581, Lancaster University Management School, Economics Department.
    6. Dawid, Herbert & Hellmann, Tim, 2016. "R&D Investments under Endogenous Cluster Formation," Center for Mathematical Economics Working Papers 555, Center for Mathematical Economics, Bielefeld University.

    More about this item

    Keywords

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

    JEL classification:

    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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