Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93896
Authors: 
Fan, Cuihong
Jun, Byoung Heon
Wolfstetter, Elmar G.
Year of Publication: 
2009
Series/Report no.: 
SFB/TR 15 Discussion Paper 291
Abstract: 
We consider a licensing mechanism for process innovations that combines a license auction with royalty contracts to those who lose the auction. Firms' bids are dual signals of their cost reductions: the winning bid signals the own cost reduction to rival oligopolists, whereas the losing bid influences the beliefs of the innovator who uses that information to set the royalty rate. We derive conditions for existence of a separating equilibrium, explain why a sufficiently high reserve price is essential for such an equilibrium, and show that the innovator generally benefits from the proposed mechanism.
Subjects: 
Patents
licensing
auctions
royalty
innovation
R&D
mechanism design
JEL: 
D21
D43
D44
D45
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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