Licensing a common value innovation when signaling strength may backfire

Cuihong Fan (), Byoung Jun () and Elmar Wolfstetter

International Journal of Game Theory, 2014, vol. 43, issue 1, 215-244

Abstract: This paper reconsiders the licensing of a common value innovation to a downstream duopoly, assuming firms observe imperfect signals of the cost reduction induced by the innovation. The innovator adopts a direct revelation mechanism and awards an unrestricted license to the firm that reports the highest signal and a royalty contract to the other. Firms may signal strength to their rivals through exaggerated messages, which may however backfire, and give rise to higher royalty payments. We provide sufficient conditions for truthful implementation, and for the profitability of adding royalty contracts to what is otherwise a first-price license auction. Copyright Springer-Verlag Berlin Heidelberg 2014

Keywords: Patents; Licensing; Auctions; Innovation; Mechanism design; D21; D43; D44; D45 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (5)

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Working Paper: Licensing a common value innovation when signaling strength may backfire (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:spr:jogath:v:43:y:2014:i:1:p:215-244

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DOI: 10.1007/s00182-013-0391-9

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