DP15703 Patent Auctions and Bidding Coalitions: Structuring the Sale of Club Goods

Author(s): John Asker, Mariagiovanna Baccara, SangMok Lee
Publication Date: January 2021
Keyword(s): asymmetric auctions, Club goods, Intellectual Property, patents
JEL(s): D44, D47, K1, L14
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15703

Auctioneers of patents are observed to allow joint bidding by coalitions of buyers. These auctions are distinguished from standard ones by the patents being non-rivalrous, but still excludable, in consumption--that is, they are club goods. This affects the way coalitional bidding impacts auction performance. We study the implications of coalitions of bidders on second-price (or equivalently, ascending-price) auctions. Although the formation of coalitions per se can benefit the seller, we show that stable coalition profiles tend to consist of excessively large coalitions, to the detriment of both auction revenue and social welfare. We show that limiting the permitted coalition size increases efficiency and confers benefits on the seller. Lastly, we compare the revenues generated by patent auctions and multi-license auctions, and we find that the latter are superior in a large class of environments.