Exploitation of an innovation commonly requires some disclosure of enabling knowledge (e.g., to obtain a patent or induce complementary investment). When property rights offer only limited protection, the value of the disclosure is offset by the increased threat of imitation. Our model incorporates three features critical to this setting: innovation creates asymmetric information, innovation often has only limited legal protection, and disclosure facilitates imitation. Imitation depends on inferences the imitator makes about the innovator's advance. We find an equilibrium in which small inventions are not imitated, medium inventions involve a form of "implicit licensing,"and large inventions are protected primarily through secrecy when property rights are weak.

Ideas are difficult to sell when buyers cannot assess an idea's value before it is revealed and sellers cannot protect a revealed idea. These problems exist in a variety of intellectual property sales ranging from pure ideas to poorly protected inventions and reflect the nonverifiability of key elements of an intellectual property sale. An expropriable partial disclosure can be used as a signal, allowing the seller to obtain payment based on the value of the remaining (undisclosed) know-how. We examine contracting after the disclosure and find that seller wealth is pivotal in supporting a partial disclosure equilibrium and in determining the payoff size.

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Oxford University Press is collaborating with JSTOR to digitize, preserve and extend access to The QuarterlyWe analyze split award procurement auctions in which a buyer divides full production between two suppliers or awards all production to a single supplier, and suppliers have private cost information. An intriguing feature of split awards is that the equilibrium bids are implicitly coordinated. Because a split award price is the sum of offered split prices, each supplier can unilaterally veto a split award by bidding very high for the split. The need to coordinate is reflected in a split price that does not vary with private information. We also explore conditions under which split award auctions may be preferred to winner-take-all auctions.? 1992 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology. COORDINATION IN SPLIT AWARD AUCTIONS 683involving two suppliers.4 Our model captures the essential features of dual source split award competitions that are run by the U. S. government.5 Based on private information about costs, each supplier submits bids that consist of a price for supply of the total requirements and a price for supply of a fixed split of the total requirements. The buyer awards production based on the lowest sole source or combination of split award prices. Thus, both sole source and split outcomes are feasible.An intriguing feature of dual source split awards is that the equilibrium bid prices are implicitly coordinated. Because a split award price is the sum of the prices offered by each supplier, a split award cannot be generated unilaterally-each bidder can always "veto" a split award by offering a high price at the split and a low price for a sole source award.When split production is cost efficient, bidders choose split and sole source prices to support a split outcome. In contrast to the familiar structure of equilibrium bids in a unit auction (e.g., indivisible good), equilibrium split prices in a split award auction involve pooling: the equilibrium split price does not vary with privately observed cost information. While a range of split prices can be supported as equilibria, a natural focal point is provided by the equilibrium with the highest split price as this is Pareto dominant with respect to the profits of the suppliers.Relative to procurement settings where the suppliers have very accurate information about each other's costs (e.g., full information), asymmetric cost information has the effect of restricting the degree of equilibrium bidding coordination in a split award auction. This is because under full information the equilibrium bids can support high profits via prices that are structured to accoun...

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