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Intellectual Property Disclosure as “Threat”

Author

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  • Scott Baker
  • Pak Yee Lee
  • Claudio Mezzetti

Abstract

This paper models the disclosure of knowledge as a "threat", useful in ensuring firms keep their commitments. We show that firms holding knowledge are better able to enforce agreements than firms that don’t. In markets requiring innovation to make a product, disclosure is a more powerful threat than entry by the punishing firm alone. Occasionally, the punishing firm won’t be able to innovate, making it impossible for it to enter the cheating firm’s market and punish. The punishing firm, however, can through disclosure credibly ensure that one, if not many, firms enter the cheating firm’s market. In the model, firms contract explicitly to exchange knowledge and tacitly to coordinate the introduction of innovations to the marketplace. We find conditions under which firms can self-enforce both agreements. The enforcement conditions are weaker when (1) firms possess knowledge and (2) knowledge is easily transferable to other firms. The disclosure threat has implication for antitrust law generally, which are considered.

Suggested Citation

  • Scott Baker & Pak Yee Lee & Claudio Mezzetti, 2007. "Intellectual Property Disclosure as “Threat”," Discussion Papers in Economics 07/08, Division of Economics, School of Business, University of Leicester.
    • Handle: RePEc:lec:leecon:07/8
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    References listed on IDEAS

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    1. Etienne Billette de Villemeur & Laurent Flochel & Bruno Versaevel, 2013. "Optimal collusion with limited liability," International Journal of Economic Theory, The International Society for Economic Theory, vol. 9(3), pages 203-227, September.

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