A Sequential Signaling Model of the Sale of an Invention to an Oligopolist

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Abstract

I consider the problem of an independent inventor attempting to sell a cost-reducing innovation in an oligopoly setting. There are N potential buyers and the inventor possesses private information regarding the value of the invention. A revealing equilibrium is characterized in which the inventor's demand signals the value of the invention to each potential buyer. I find that both the inventor's demand and his continuation value increase as the number of firms left in the sequence of potential buyers increases. I also find that a firm's probability of rejecting the inventor's demand is higher the sooner the firm is approached in the sequence.

Original languageAmerican English
JournalThe B.E. Journal of Theoretical Economics: Topics
Volume4
DOIs
StatePublished - May 13 2004

Keywords

  • Invention
  • Oligopolist
  • Sale
  • Sequential signaling model

DC Disciplines

  • Business
  • Economics

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