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Licensing process innovations when losers' messages determine royalty rates
- Issue Date
- 11월-2013
- Publisher
- ACADEMIC PRESS INC ELSEVIER SCIENCE
- Keywords
- Patents; Licensing; Auctions; Royalty; Innovation; R& D; Mechanism design
- Citation
- GAMES AND ECONOMIC BEHAVIOR, v.82, pp.388 - 402
- Indexed
- SSCI
SCOPUS
- Journal Title
- GAMES AND ECONOMIC BEHAVIOR
- Volume
- 82
- Start Page
- 388
- End Page
- 402
- ISSN
- 0899-8256
- 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. Firms' 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 losers' 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. (C) 2013 Elsevier Inc. All rights reserved.
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