Working Paper: CEPR ID: DP13173
Authors: Lars Persson; Pehr-Johan Norbäck; Roger Svensson
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.
Keywords: acquisitions; innovation; startups; ownership; patents; verification; quality
JEL Codes: G24; L1; L2; M13; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High-quality inventions (O36) | Enter market (D40) |
| Enter market (D40) | Higher sales prices (D49) |
| Enter market (D40) | Incumbents' bidding behavior (D44) |
| High-quality inventions (O36) | Higher sales prices (D49) |
| Entry (Y20) | Sale likelihood for high-quality inventions (L15) |
| Invention quality (L15) | Sale likelihood (L81) |