DP13173 Verifying High Quality: Entry for Sale
|Author(s):||Pehr-Johan Norbäck, Lars Persson, Roger Svensson|
|Publication Date:||September 2018|
|Keyword(s):||Acquisitions, Innovation, ownership, patents, Quality, start-ups, Verification|
|JEL(s):||G24, L1, L2, M13, O3|
|Programme Areas:||Industrial Organization|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=13173|
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.