An Application of Nash Bargaining to Intellectual Property Negotiations

26 Pages Posted: 11 Sep 2015

Date Written: September 1, 2015

Abstract

In what follows we propose a solution to a hypothetical bargaining problem that is likely to arise when the owner of an invention, which is assumed to lower the marginal cost of production, negotiates a patent license with producers. We show that, under various assumptions about the downstream market structure, the solution that maximizes the Nash product in a specific market context need not require an even split of the available surplus. This conclusion about the equilibrium allocation of surplus is appropriate whether one adopts the original axiomatic treatment by Nash or the later dynamic non-cooperative bargaining model of Rubinstein and others. Initially, we describe the use of the Nash solution when there is a single patentee negotiating a license with a monopolist producer. We subsequently describe the more-recent Nash-in-Nash bargaining solution of Horn and Wolinsky, assuming there are two downstream rival producers with market power who independently negotiate a non-exclusive license with the patentee. Throughout, we pay particular attention to the complexities of defining disagreement payoffs, properly including attention to their credibility in the sense of Binmore.

Keywords: Intellectual Property, Hypothetical Negotiations, Nash Bargaining

Suggested Citation

Higgins, Richard Stockton and Klenk, Jeffrey, An Application of Nash Bargaining to Intellectual Property Negotiations (September 1, 2015). Available at SSRN: https://ssrn.com/abstract=2658212 or http://dx.doi.org/10.2139/ssrn.2658212

Richard Stockton Higgins

BRG ( email )

1800 M Street NW
Second floor
Washington, DC 20036
United States
2024802743 (Phone)

Jeffrey Klenk (Contact Author)

Berkeley Research Group,LLC ( email )

1800 M Street NW
Second floor
Washington, DC 20036
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
123
Abstract Views
631
rank
310,715
PlumX Metrics