Licensing a common value innovation when signaling strength may backfire

Cuihong Fan; Byoung Heon Jun; Elmar G. Wolfstetter

doi:10.1007/s00182-013-0391-9

Licensing a common value innovation when signaling strength may backfire

Cuihong Fan, Byoung Heon Jun, Elmar G. Wolfstetter

Department of Economics

Research output: Contribution to journal › Article

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 language	English
Pages (from-to)	215-244
Number of pages	30
Journal	International Journal of Game Theory
Volume	43
Issue number	1
DOIs	https://doi.org/10.1007/s00182-013-0391-9
Publication status	Published - 2014 Jan 1

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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

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

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Access to Document

10.1007/s00182-013-0391-9