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 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
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 journal › Article
}
TY - JOUR
T1 - Licensing a common value innovation when signaling strength may backfire
AU - Fan, Cuihong
AU - Jun, Byoung Heon
AU - Wolfstetter, Elmar G.
PY - 2014/1/1
Y1 - 2014/1/1
N2 - 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.
AB - 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.
KW - Auctions
KW - Innovation
KW - Licensing
KW - Mechanism design
KW - Patents
UR - http://www.scopus.com/inward/record.url?scp=84899475418&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84899475418&partnerID=8YFLogxK
U2 - 10.1007/s00182-013-0391-9
DO - 10.1007/s00182-013-0391-9
M3 - Article
AN - SCOPUS:84899475418
VL - 43
SP - 215
EP - 244
JO - International Journal of Game Theory
JF - International Journal of Game Theory
SN - 0020-7276
IS - 1
ER -