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Alan Marco and Kieran Walsh
''Credibility and Credulity: How Beliefs about Beliefs Affect Entry Incentives''
( 2007, Vol. 11 No.1 )
In this note we investigate the infringement (entry) decision for a firm facing an incumbent patent holder with uncertain patent rights. The entrant risks a dispute by entering, resulting in either a settlement (licensing) or litigation and trial. Using the litigation model described by Priest and Klein, we investigate the expected dispute resolution and its impacts on the entrant's pre-dispute behavior. The primary contribution is to show that the entrant's expectations about the patent holder's beliefs about patent enforceability are a driving factor behind the entry decision. We develop a simple taxonomy of entrant and incumbent types to explain the entry decision.
L1 - Market Structure, Firm Strategy, and Market Performance: General
Manuscript Received : Nov 13 2006 Manuscript Accepted : Jan 17 2007

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