Verifying High Quality: Entry for Sale

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 lowquality 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.

The Scientific Output of a Database on Commercialized Patents

“…When inventors sold or licensed the patent to a specialized entrepreneur, the probability of a successful commercialization increased compared to the case of an inventor commercializing the patent him/herself, indicating that invention and innovation require different skills (Braunerhjelm and Svensson 2010). The entry strategy among inventors in oligopolistic markets is analyzed in Norbäck et al (2017). Due to asymmetric information, it is difficult for inventors to obtain a high price if patents are sold directly.…”

“…An interesting observation (not shown in the table) is that most of these (38 out of 50) were first commercialized through entry and thereafter sold or licensed. In Norbäck et al (2017), it is argued that asymmetric information about the quality of the invention gives inventors incentives to first enter the market to verify the invention's high quality and thereafter sell/license the patent. Therefore, owners can receive a higher acquisition or licensing price through bidding competition when the true quality is revealed.…”

“…When the paper was published in a journal (Norbäck et al 2016), the empirical part using the patent database was dropped. Instead, the empirical estimations were extended by considering asymmetric information in Norbäck et al (2017), see above.…”

“…In another study, we analyze the entry strategy among inventors in oligopolistic markets. Then, the presence of private venture capital (VC) firms could be used as an indicator of lower transaction costs when selling/licensing patents (Norbäck et al 2017). It turned out that inventor activity was a practical variable when analyzing the transfer of tacit knowledge from inventors to external entrepreneurs as patents were sold or licensed (Maurseth and Svensson 2020).…”

Talent Acquisitions and Lock-in Agreements: Antitrust Concerns

“…If it is unreasonable and unnecessary to protect legitimate business interests, it is illegal and raises an antitrust concern. In some cases, such restraints have a clear goal: to eliminate competition 22 .…”