Abstract
We consider a licensing mechanism for process innovations that awards a limited number of unrestricted licenses to those firms that report the highest cost reductions, combined with royalty licenses to others. Firms' messages are dual signals of their cost reductions: the message of those who win an unrestricted license signals their cost reduction to rival firms, while losers' messages influence the royalty rate set by the innovator. We explain why a sufficiently high threshold level for awarding the unrestricted license is essential to induce truth-telling, show that the innovator generally benefits from the proposed mechanism, and derive conditions for implementability by a modified second-price auction.
Original language | English |
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Pages (from-to) | 388-402 |
Number of pages | 15 |
Journal | Games and Economic Behavior |
Volume | 82 |
DOIs | |
Publication status | Published - 2013 Nov |
Keywords
- Auctions
- Innovation
- Licensing
- Mechanism design
- Patents
- R&D
- Royalty
ASJC Scopus subject areas
- Finance
- Economics and Econometrics