Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1186: Verifying High Quality: Entry for Sale

Pehr-Johan Norbäck (), Lars Persson () and Roger Svensson ()
Additional contact information
Pehr-Johan Norbäck: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Lars Persson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden
Roger Svensson: Research Institute of Industrial Economics (IFN), Postal: P.O. Box 55665, SE-102 15 Stockholm, Sweden

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.

Keywords: Acquisitions; Innovation; Start-ups; Ownership; Patents; Verification; Quality

JEL-codes: G24; L10; L20; M13; O30

46 pages, October 30, 2017

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