Bargaining with Externalities: Licensing of an Innovation

José Sempere-Monerris and Vincent J. Vannetelbosch
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Vincent J. Vannetelbosch: UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES); UNIVERSITE CATHOLIQUE DE LOUVAIN, Center for Operations Research and Econometrics (CORE)

No 1997007, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: The objective of this paper is to analyze the relationship between bargaining organizational forms and the licensing of cost-reducing innovations, in order to assess the patent holders optimal policy as well as their welfare properties. Trading mechanisms based on bargaining models with voluntary matching become more relevant when the market for an innovation is small. Our main findings are that when we exclude the use of a reservation price different to the continuation value of the game, it is no longer true that the auction mechanism yields always higher profits to the patentee than a fixed fee. Furthermore, the patent holder prefers the take-it-or-leave-it to the fixed fee, the alternating bids or the simultaneous bids mechanism. Also, bargaining mechanisms allow the patentee to overcome the credibility problem associated with the reservation price. Regarding the social viewpoint (a social agency maximizing the domestic welfare under the assumption that the patentee is a foreign laboratory), it is the best the licensing through the simultaneous bids mechanism. Moreover, licensing through the take-it-or-leave-it is better than licensing through auction mechanisms.

Keywords: Bargaining; Matching; Licensing; Innovation; Externalities (search for similar items in EconPapers)
JEL-codes: C78 (search for similar items in EconPapers)
Pages: 26
Date: 1997-05-01
New Economics Papers: this item is included in nep-gth, nep-ino and nep-mic
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