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 |
|---|---|
| Pages (from-to) | 388-402 |
| Number of pages | 15 |
| Journal | Games and Economic Behavior |
| Volume | 82 |
| DOIs | |
| Publication status | Published - 2013 Nov 1 |
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Keywords
- Auctions
- Innovation
- Licensing
- Mechanism design
- Patents
- R&D
- Royalty
ASJC Scopus subject areas
- Economics and Econometrics
- Finance
Cite this
Licensing process innovations when losers' messages determine royalty rates. / Fan, Cuihong; Jun, Byoung Heon; Wolfstetter, Elmar G.
In: Games and Economic Behavior, Vol. 82, 01.11.2013, p. 388-402.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Licensing process innovations when losers' messages determine royalty rates
AU - Fan, Cuihong
AU - Jun, Byoung Heon
AU - Wolfstetter, Elmar G.
PY - 2013/11/1
Y1 - 2013/11/1
N2 - 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.
AB - 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.
KW - Auctions
KW - Innovation
KW - Licensing
KW - Mechanism design
KW - Patents
KW - R&D
KW - Royalty
UR - http://www.scopus.com/inward/record.url?scp=84883616205&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84883616205&partnerID=8YFLogxK
U2 - 10.1016/j.geb.2013.08.003
DO - 10.1016/j.geb.2013.08.003
M3 - Article
AN - SCOPUS:84883616205
VL - 82
SP - 388
EP - 402
JO - Games and Economic Behavior
JF - Games and Economic Behavior
SN - 0899-8256
ER -