Licensing a common value innovation when signaling strength may backfire
This paper reconsiders the licensing of a common value innovation to a downstream duopoly, assuming a dual licensing scheme that combines a first-price license auction with royalty contracts for losers. Prior to bidding firms observe imperfect signals of the expected cost reduction; after the auction the winning bid is made public. Bidders may signal strength to their rivals through aggressive bidding, which may however backfire and mislead the innovator to set an excessively high royalty rate. We provide sufficient conditions for existence of monotone bidding strategies and for the profitability of combining auctions and royalty contracts for losers.
|Date of creation:||Jan 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.sfbtr15.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jos Jansen, 2011. "On Competition and the Strategic Management of Intellectual Property in Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 20(4), pages 1043-1072, December.
- Wilson, Robert, 1977. "A Bidding Model of Perfect Competition," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 511-18, October.
- Giebe, Thomas & Wolfstetter, Elmar G., 2007.
"License Auctions with Royalty Contracts for (Winners and) Losers,"
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems
199, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- Giebe, Thomas & Wolfstetter, Elmar, 2008. "License auctions with royalty contracts for (winners and) losers," Games and Economic Behavior, Elsevier, vol. 63(1), pages 91-106, May.
- Katz, Michael L & Shapiro, Carl, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 567-89, August.
- Goeree, Jacob K., 2003. "Bidding for the future: signaling in auctions with an aftermarket," Journal of Economic Theory, Elsevier, vol. 108(2), pages 345-364, February.
- Kamien, Morton I & Tauman, Yair, 1986.
"Fees versus Royalties and the Private Value of a Patent,"
The Quarterly Journal of Economics,
MIT Press, vol. 101(3), pages 471-91, August.
- Morton I. Kamien & Yair Tauman, 1984. "Fees Versus Royalties and the Private Value of a Patent," Discussion Papers 583, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Harstad, Ronald M & Levin, Dan, 1985. "A Class of Dominance Solvable Common-Value Auctions," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 525-28, July.
- Sen, Debapriya, 2005. "Fee versus royalty reconsidered," Games and Economic Behavior, Elsevier, vol. 53(1), pages 141-147, October.
- Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
- Bagnoli, M. & Bergstrom, T., 1989.
"Log-Concave Probability And Its Applications,"
89-23, Michigan - Center for Research on Economic & Social Theory.
- Philippe Jehiel & Benny Moldovanu, 2000.
"Auctions with Downstream Interaction Among Buyers,"
RAND Journal of Economics,
The RAND Corporation, vol. 31(4), pages 768-791, Winter.
- Sen, Debapriya & Tauman, Yair, 2007.
"General licensing schemes for a cost-reducing innovation,"
Games and Economic Behavior,
Elsevier, vol. 59(1), pages 163-186, April.
- Debapriya Sen & Yair Tauman, 2002. "General licensing schemes for a cost-reducing innovation," Department of Economics Working Papers 02-03, Stony Brook University, Department of Economics.
- Das Varma, Gopal, 2003. "Bidding for a process innovation under alternative modes of competition," International Journal of Industrial Organization, Elsevier, vol. 21(1), pages 15-37, January.
- Jacob K. Goeree & Theo Offerman, 2003.
"Competitive Bidding in Auctions with Private and Common Values,"
Royal Economic Society, vol. 113(489), pages 598-613, 07.
- Jacob K. Goeree & Theo Offerman, 1999. "Competitive Bidding in Auctions with Private and Common Values," Virginia Economics Online Papers 337, University of Virginia, Department of Economics.
- 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.
- Klemperer, Paul, 1998. "Auctions with almost common values: The 'Wallet Game' and its applications," European Economic Review, Elsevier, vol. 42(3-5), pages 757-769, May.
- Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 103-35, March.
When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:292. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alexandra Frank)
If references are entirely missing, you can add them using this form.