nep-gth 2011-12-05 papers

on Game Theory

Issue of 2011‒12‒05
two papers chosen by
Laszlo A. Koczy
Hungarian Academy of Sciences and Obuda University

Learning and Collusion in New Markets with Uncertain Entry Costs By Francis Bloch; Simona Fabrizi; Steffen Lippert
Inefficiencies in the sale of ideas: theory and empirics By Marie-Laure Allain; Emeric Henry; Margaret Kyle

Learning and Collusion in New Markets with Uncertain Entry Costs

By:	Francis Bloch (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Simona Fabrizi (Massey University - SIERC); Steffen Lippert (University of Otago - Department of Economics)
Abstract:	This paper analyzes an entry timing game with uncertain entry costs. Two firms receive costless signals about the cost of a new project and decide when to invest. We characterize the equilibrium of the investment timing game with private and public signals. We show that competition leads the two firms to invest too early and analyze collusion schemes whereby one firm prevents the other firm from entering the market. We show that, in the efficient collusion scheme, the active firm must transfer a large part of the surplus to the inactive firm in order to limit preemption.
Keywords:	Learning; Preemption; Innovation; New Markets; Project Selection; Entry Costs; Collusion; Private Information; Market Uncertainty
Date:	2011–11–08
URL:	http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00639049&r=gth

Inefficiencies in the sale of ideas: theory and empirics

By:	Marie-Laure Allain (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X); Emeric Henry (Sciences Po - Department of Economics); Margaret Kyle (TSE - Toulouse School of Economics - Toulouse School of Economics)
Abstract:	The sale of ideas (e.g. through licensing) facilitates vertical specialization and the division of labor between research and development. This specialization can improve the overall efficiency of the innovative process. However, these gains depend on the timing of the sale: the buyer of an idea should assume development at the stage at which he has an efficiency advantage. We show that in an environment with asymmetric information about the value of the idea and where this asymmetry decreases as the product is developed, the seller of the idea may delay the sale to the more efficient firm, thus incurring higher development costs. We obtain a condition for the equilibrium timing of the sale and examine how factors such as the intensity of competition between potential buyers influence it. Empirical analysis of licensing contracts signed between firms in the pharmaceutical industry supports our theoretical predictions.
Keywords:	Innovation, Licensing, Market structure, Bargaining, Pharmaceuticals, Biotechnology.
Date:	2011–11–08
URL:	http://d.repec.org/n?u=RePEc:hal:wpaper:hal-00639128&r=gth

This nep-gth issue is ©2011 by Laszlo A. Koczy. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.

General information on the NEP project can be found at http://nep.repec.org. For comments please write to the director of NEP, Marco Novarese at <director@nep.repec.org>. Put “NEP” in the subject, otherwise your mail may be rejected.

NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.