Credibility and Credulity: How Beliefs about Beliefs Affect Entry Incentives

Alan Marco () and Kieran Walsh ()
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Kieran Walsh: Federal Reserve Bank of New York

Economics Bulletin, 2007, vol. 11, issue 1, 1-7

Abstract: In this note we investigate the infringement (entry) decision for a firm facing an incumbent patent holder with uncertain patent rights. The entrant risks a dispute by entering, resulting in either a settlement (licensing) or litigation and trial. Using the litigation model described by Priest and Klein, we investigate the expected dispute resolution and its impacts on the entrant's pre-dispute behavior. The primary contribution is to show that the entrant's expectations about the patent holder's beliefs about patent enforceability are a driving factor behind the entry decision. We develop a simple taxonomy of entrant and incumbent types to explain the entry decision.

JEL-codes: K0 L1 (search for similar items in EconPapers)
Date: 2007-01-17
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