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Working paper No. 261: Trade in Ideas: Performance and Behavioural Properties of Markets in Patents with Two-part Tariff

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Ekonomisk utveckling, Eskil Ullberg, Experimentell ekonomi, Företagandets villkor, Innovation, Kreativitet, Lärande, Osäkerhet, Patent, Tillväxt, Uppfinning
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Abstract

Performance and behavioural properties of markets in patents are studied using a contract with a two-part tariff (fixed fee and royalty) on patented technology with limited validity and random values, in an economic experiment. Performance doubles when demand side bidding is introduced for both tariffs, resulting in gains from trade, compared with supply side take-it-or-leave-it offers. This departs from the hierarchical view of (Arrow, 1962), where the invention and innovation takes place in the same firm, eliminating any gains from trade in the analysis. An informal theory is proposed, based on insurance of market access, and tested. The sustained prices support the hypothesis that fixed fee = blocking value, thus supports rational expectations according to Muth under conditions of demand-side bidding in both tariffs. Understanding nature then drives demand for science (North, 1981). What made productivity grow in Europe may therefore have been the patent system by increasing growth in economically useful technology through a producer market.

Ullberg, E. (2015). Trade in Ideas: Performance and Behavioural Properties of Markets in Patents with Two-part Tariff. Working Paper No. 261.

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Working Paper No. 260: Coordination of Inventions and Innovations through patent markets with prices
Working paperPublication
Ullberg, E.
Publication year

2015

Published in

Ratio Working Paper

Abstract

This article examines coordination between inventors and innovators through prices in a market for contracts on patented technology, in a controlled laboratory experiment. Typically, a hierarchical approach is used to analyze such coordination, new technology being exogenous, and risk managed in separate markets. Price signals and search patterns are compared for three institutional mechanisms and two levels of patent validity in a 3 x 2 experimental design. “Willingness to search” in a technology map of 9 “technology areas”, each with private and uncertain values for agents, are used to characterize and differentiate institutional behavior with respect to investment decisions in new technology. The results indicate that coordination and that the willingness to search out the most valuable technology differs sharply between the mechanisms; low patent validity also results in poor coordination. Policy implications suggest facilitating a market in tradable contracts on patents is needed. This may entail lowering risk in using patent “assets” (access to quality patents and enforcements for SMEs) and new forms of legal associations for IP intensive firms.

Working Paper No. 260: Coordination of Inventions and Innovations through patent markets with prices
Working paperPublication
Ullberg, E.
Publication year

2015

Published in

Ratio Working Paper

Abstract

This article examines coordination between inventors and innovators through prices in a market for contracts on patented technology, in a controlled laboratory experiment. Typically, a hierarchical approach is used to analyze such coordination, new technology being exogenous, and risk managed in separate markets. Price signals and search patterns are compared for three institutional mechanisms and two levels of patent validity in a 3 x 2 experimental design. “Willingness to search” in a technology map of 9 “technology areas”, each with private and uncertain values for agents, are used to characterize and differentiate institutional behavior with respect to investment decisions in new technology. The results indicate that coordination and that the willingness to search out the most valuable technology differs sharply between the mechanisms; low patent validity also results in poor coordination. Policy implications suggest facilitating a market in tradable contracts on patents is needed. This may entail lowering risk in using patent “assets” (access to quality patents and enforcements for SMEs) and new forms of legal associations for IP intensive firms.

Working Paper No. 261: Trade in Ideas: Performance and Behavioural Properties of Markets in Patents with Two-part Tariff
Working paperPublication
Ullberg, E.
Publication year

2015

Published in

Ratio Working Paper

Abstract

Performance and behavioural properties of markets in patents are studied using a contract with a two-part tariff (fixed fee and royalty) on patented technology with limited validity and random values, in an economic experiment. Performance doubles when demand side bidding is introduced for both tariffs, resulting in gains from trade, compared with supply side take-it-or-leave-it offers. This departs from the hierarchical view of (Arrow, 1962), where the invention and innovation takes place in the same firm, eliminating any gains from trade in the analysis. An informal theory is proposed, based on insurance of market access, and tested. The sustained prices support the hypothesis that fixed fee = blocking value, thus supports rational expectations according to Muth under conditions of demand-side bidding in both tariffs. Understanding nature then drives demand for science (North, 1981). What made productivity grow in Europe may therefore have been the patent system by increasing growth in economically useful technology through a producer market.

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