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Bargaining with private information and the option of a compulsory license

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  • Bond, Eric W.
  • Samuelson, Larry

Abstract

We study bargaining between a country and a multinational firm over the firm's entry to sell a patented product when the firm has private information about its profits and the country has the threat of issuing a compulsory license (CL). We assume the CL expands the surplus for some firm types, so that efficiency calls for all firms with sufficiently high valuations to enter immediately and those with lower valuations to wait for a CL. We establish the existence of two types of equilibria, depending on the maximum initial valuation: a bargaining pause equilibrium in which negotiations lie dormant for a finite period before the deadline and a licensing delay equilibrium in which bargaining continues for a finite time beyond the deadline. Two types of inefficiency arise—too many firms wait for the license and some firms who do not wait for the license are forced to delay agreements.

Suggested Citation

  • Bond, Eric W. & Samuelson, Larry, 2019. "Bargaining with private information and the option of a compulsory license," Games and Economic Behavior, Elsevier, vol. 114(C), pages 83-100.
    • Handle: RePEc:eee:gamebe:v:114:y:2019:i:c:p:83-100
    DOI: 10.1016/j.geb.2018.12.003
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    References listed on IDEAS

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    More about this item

    Keywords

    Bargaining; Compulsory license; Deadlines;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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