Patent licensing to Bertrand competitors

Benny Moldovanu, Aner Sela

Research output: Contribution to journalArticlepeer-review

Abstract

A cost-reducing process innovation protected by a patent is sold to one of several firms engaged in price competition. Incomplete information about production costs yields an auction model with both private and common value components. Our main result is that standard auction mechanisms lead to inefficient allocations. This sharply contrasts with the result obtained under complete information. The inefficiency result extends to patent race frameworks which resemble all-pay auctions. An auction where the lowest bidder gets the patent is shown to have several equilibria, one of which is efficient.

Original languageEnglish
Pages (from-to)1-13
Number of pages13
JournalInternational Journal of Industrial Organization
Volume21
Issue number1
DOIs
StatePublished - Jan 2003
Externally publishedYes

Keywords

  • Incomplete information
  • Patents
  • Price competition

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