Intellectual property disclosure as threat

This paper models leading firms in innovation markets deciding first whether to share knowledge, and then playing a market entry game. When firms are sufficiently patient, we show that the feasibility of intellectual property disclosure through licensing to outsiders provides a useful additional threat to entry by the punishing firm in the entry game. The opposite is true when firms are impatient; the availability of intellectual property disclosure makes coordination harder. We also show that if the probability that the leading firms will be able to innovate even without knowledge sharing is sufficiently high and firms are sufficiently patient, then it is also possible for the firms to enforce a knowledge-sharing agreement before innovation has taken place.