| Abstract: |
This paper models the disclosure of knowledge via licensing to outsiders or
fringe firms as a threat, useful in ensuring firms keep their commitments. We
show that firms holding intellectual property are better able to enforce
agreements than firms that don't. In markets requiring innovation to make a
product, IP disclosure presents a more powerful threat than entry by the
punishing firm alone. Occasionally, a punishing firm won't be able to
translate its intellectual property into a full-blown product, making it
impossible for it to enter the cheating firm's market and punish. Even if it
can't make a product itself, the punishing firm can always credibly threaten
to license the intellectual property it has on hand to someone else. With this
intellectual property as a springboard, chances are at least one fringe firm
will be able to do the translation, make the product and enter the cheating
firm's market. In short, the potential for licensing increases the likelihood
of punishment for uncooperative behavior.In the model, firms contract
explicitly to ex-change knowledge and tacitly to coordinate the introduction
of innovations to the marketplace. We find conditions under which firms can
self-enforce both agreements. The enforcement conditions are weaker when (1)
firms possess knowledge and (2) knowledge is easily transferable to other
firms. The disclosure threat has implications for antitrust law generally,
which are considered. |