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From Personal to Impersonal Exchange in Ideas: An Experimental Study of Patent Markets with Transparent Prices

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  • Eskil Ullberg

    ()
    (Interdisciplinary Center for Economic Science, George Mason University)

Abstract

The question of how prices on patents rights should be determined in impersonal exchanges is examined in a laboratory environment. Dynamic gains from such organized trade with public prices are recorded. The experiment introduces a competitive market with impersonal exchange mechanisms and prices in the traditionally hierarchical and personal exchange of patents. A tradable linear contract (fixed fee plus royalty)is investigated with three mechanism designs for demand-side bidding and two levels of presumed legal validity of the underlying patent. A "trader" can split contracts useful for multiple "industries," creating dynamic gains, potentially increasing the use of technology in the economic system. Previous research on licensing has mostly been limited to one-dimensional auction mechanisms or static environments. The results indicate that agents appear to price the blocking value in the fixed fee and the investment value, net what is paid in fixed, in the royalty component, supporting a proposed theory of prices. Risks are thereby shifted from the invention to the consumer by means of this producer market, increasing the incentives for investment in invention, potentially resulting in a more competitive technology being developed and a more efficient economic system. The results give indications on proper integration of information and rules for mechanisms for organized market on patents with transparent prices. It also shows that intermediaries (traders) are critical to achieve dynamic gains from the system as are high presumed validity of patents.

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Bibliographic Info

Paper provided by George Mason University, Interdisciplinary Center for Economic Science in its series Working Papers with number 1017.

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Length: 44
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:gms:wpaper:1017

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Keywords: patents; trade; licensing; intellectual property; experiments;

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Cited by:
  1. Christoph Engel & Marco Kleine, 2013. "Who is Afraid of Pirates? An Experiment on the Deterrence of Innovation by Imitation," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2013_07, Max Planck Institute for Research on Collective Goods, revised Nov 2013.

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