Discussion Paper Details

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Title: Verifying High Quality: Entry for Sale

Author(s): Pehr-Johan Norbäck, Lars Persson and Roger Svensson

Publication Date: September 2018

Keyword(s): Acquisitions, Innovation, ownership, patents, Quality, start-ups and Verification

Programme Area(s): Industrial Organization

Abstract: When and how do entrepreneurs sell their inventions? To address this issue, we develop an endogenous entry-sale asymmetric information oligopoly model. We show that low quality inventions are sold directly or used for own entry. Inventors who sell post-entry use entry to credibly reveal information on quality. Incumbents are then willing to pay high prices for high-quality inventions to preempt rivals from obtaining them. Using Swedish data on patents granted to small firms and individuals, we find evidence that high-quality inventions are sold under preemptive bidding competition, post entry.

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Bibliographic Reference

Norbäck, P, Persson, L and Svensson, R. 2018. 'Verifying High Quality: Entry for Sale'. London, Centre for Economic Policy Research.