Verifying High Quality: Entry for Sale

54 Pages Posted: 14 Jul 2020 Last revised: 6 Aug 2020

See all articles by Pehr-Johan Norbäck

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN)

Lars Persson

Research Institute of Industrial Economics (IFN); Centre for Economic Policy Research (CEPR)

Roger Svensson

Research Institute of Industrial Economics (IFN)

Date Written: March 5, 2019

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 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 Classification: G24, L1, L2, M13, O3

Suggested Citation

Norbäck, Pehr-Johan and Persson, Lars and Svensson, Roger, Verifying High Quality: Entry for Sale (March 5, 2019). IFN Working Paper No. 1186, Available at SSRN: https://ssrn.com/abstract=3632370 or http://dx.doi.org/10.2139/ssrn.3632370

Pehr-Johan Norbäck

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Lars Persson

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Roger Svensson (Contact Author)

Research Institute of Industrial Economics (IFN) ( email )

Box 55665
Grevgatan 34, 2nd floor
Stockholm, SE-102 15
Sweden
+46-8-6654549 (Phone)
+46-8-6654599 (Fax)

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