Bargaining with private information and the option of a compulsory license

Eric Bond and Larry Samuelson

Games and Economic Behavior, 2019, vol. 114, issue C, 83-100

Abstract: We study bargaining between a country and a multinational firm over the firm's entry to sell a patented product when the firm has private information about its profits and the country has the threat of issuing a compulsory license (CL). We assume the CL expands the surplus for some firm types, so that efficiency calls for all firms with sufficiently high valuations to enter immediately and those with lower valuations to wait for a CL. We establish the existence of two types of equilibria, depending on the maximum initial valuation: a bargaining pause equilibrium in which negotiations lie dormant for a finite period before the deadline and a licensing delay equilibrium in which bargaining continues for a finite time beyond the deadline. Two types of inefficiency arise—too many firms wait for the license and some firms who do not wait for the license are forced to delay agreements.

Keywords: Bargaining; Compulsory license; Deadlines (search for similar items in EconPapers)
JEL-codes: C78 F53 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:114:y:2019:i:c:p:83-100

DOI: 10.1016/j.geb.2018.12.003

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