Licensing a common value innovation when signaling strength may backfire

Cuihong Fan, Byoung Heon Jun, Elmar G. Wolfstetter

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

This paper reconsiders the licensing of a common value innovation to a downstream duopoly, assuming firms observe imperfect signals of the cost reduction induced by the innovation. The innovator adopts a direct revelation mechanism and awards an unrestricted license to the firm that reports the highest signal and a royalty contract to the other. Firms may signal strength to their rivals through exaggerated messages, which may however backfire, and give rise to higher royalty payments. We provide sufficient conditions for truthful implementation, and for the profitability of adding royalty contracts to what is otherwise a first-price license auction.

Original languageEnglish
Pages (from-to)215-244
Number of pages30
JournalInternational Journal of Game Theory
Volume43
Issue number1
DOIs
Publication statusPublished - 2014 Jan 1

Fingerprint

innovation
firm
license
Values
cost reduction
innovator
Profitability
auction
Auctions
profitability
Imperfect
Sufficient Conditions
Costs
Business
Innovation
Value innovation
Common values
Licensing
Royalty
License

Keywords

  • Auctions
  • Innovation
  • Licensing
  • Mechanism design
  • Patents

ASJC Scopus subject areas

  • Mathematics (miscellaneous)
  • Statistics and Probability
  • Economics and Econometrics
  • Social Sciences (miscellaneous)
  • Statistics, Probability and Uncertainty

Cite this

Licensing a common value innovation when signaling strength may backfire. / Fan, Cuihong; Jun, Byoung Heon; Wolfstetter, Elmar G.

In: International Journal of Game Theory, Vol. 43, No. 1, 01.01.2014, p. 215-244.

Research output: Contribution to journalArticle

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