Optimal licensing under incomplete information: the case of the inside patent holder

Posted by Social Science Research Network

Optimal licensing under incomplete information: the case of the inside patent holder

By Cuihong Fan (Shanghai University), Byoung Heon Jun & Elmar Wolfstetter (Korea University)

Abstract:     We reconsider the inside innovators’ optimal licensing problem, assuming incomplete information and unit cost profiles that may or may not have the potential to propel a monopoly, taking into account restrictions concerning royalty rates and the use of exclusive licenses implied by antitrust rules. We analyze optimal licensing mechanisms using methods developed in the analysis of license auctions with downstream interaction and applying techniques of optimal control theory. The optimal mechanism differs significantly from the mechanisms reported in the literature, which assumed complete information or particular cost profiles or probability distributions.

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