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 language | English |
|---|---|
| Pages (from-to) | 215-244 |
| Number of pages | 30 |
| Journal | International Journal of Game Theory |
| Volume | 43 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 2014 |
Keywords
- Auctions
- Innovation
- Licensing
- Mechanism design
- Patents
ASJC Scopus subject areas
- Statistics and Probability
- Mathematics (miscellaneous)
- Social Sciences (miscellaneous)
- Economics and Econometrics
- Statistics, Probability and Uncertainty
Fingerprint Dive into the research topics of 'Licensing a common value innovation when signaling strength may backfire'. Together they form a unique fingerprint.
Cite this
Fan, C., Jun, B. H., & Wolfstetter, E. G. (2014). Licensing a common value innovation when signaling strength may backfire. International Journal of Game Theory, 43(1), 215-244. https://doi.org/10.1007/s00182-013-0391-9