Licensing process innovations when losersʼ messages determine royalty rates

Cuihong Fan, Byoung Jun () and Elmar Wolfstetter

Games and Economic Behavior, 2013, vol. 82, issue C, 388-402

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. Firmsʼ 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 losersʼ 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.

Keywords: Patents; Licensing; Auctions; Royalty; Innovation; R&D; Mechanism design (search for similar items in EconPapers)
JEL-codes: D21 D43 D44 D45 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:82:y:2013:i:c:p:388-402

DOI: 10.1016/j.geb.2013.08.003

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