To Reveal or Not to Reveal: Know-How Disclosure and Joint Ventures in Procurement Auctions

Firm's incentives to form joint ventures are analyzed in an incomplete-information framework when technological know-how is private information. Firms first decide on cooperation and then compete in a second-price procurement auction. Provided that firms indicate their willingness to cooperate by revealing a fraction of their know-how, it can be shown that noncooperation is always an equilibrium. If spillovers are sufficiently low, cooperation can also occur in equilibrium. For intermediate levels of spillovers there exists an equilibrium in which only firms with low know-how cooperate.