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Licensing a common value innovation when signaling strength may backfire

Cuihong Fan, Byoung Jun () and Elmar Wolfstetter ()
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Cuihong Fan: Shanghi University of Finance and Economics School of Economics

No 1010, Discussion Paper Series from Institute of Economic Research, Korea University

Abstract: This paper reconsiders the licensing of a common value innovation to a downstream duopoly, assuming a dual licensing scheme that combines a first-price license auction with royalty contracts for losers. Prior to bidding firms observe imperfect signals of the expected cost reduction; after the auction the winning bid is made public. Bidders may signal strength to their rivals through aggressive bidding, which may however backfire and mislead the innovator to set an excessively high royalty rate. We provide sufficient conditions for existence of monotone bidding strategies and for the profitability of combining auctions and royalty contracts for losers.

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)
New Economics Papers: this item is included in nep-cta, nep-ino, nep-ipr, nep-pr~ and nep-tid
Date: 2010
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http://econ.korea.ac.kr/~ri/WorkingPapers/w1010.pdf (application/pdf)

Related works:
Journal Article: Licensing a common value innovation when signaling strength may backfire (2014) Downloads
Working Paper: Licensing a common value innovation when signaling strength may backfire (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:iek:wpaper:1010

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