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Trade in Ideas: Performance and Behavioural Properties of Markets in Patents with Two-part Tariff

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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.

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  • Ullberg, Eskil, 2015. "Trade in Ideas: Performance and Behavioural Properties of Markets in Patents with Two-part Tariff," Ratio Working Papers 261, The Ratio Institute.
    • Handle: RePEc:hhs:ratioi:0261
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    More about this item

    Keywords

    patent markets; two-part tariff contract; patent licensing; insurance; experimental economics; intellectual property rights assets;
    All these keywords.

    JEL classification:

    • B00 - Schools of Economic Thought and Methodology - - General - - - History of Economic Thought, Methodology, and Heterodox Approaches
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O00 - Economic Development, Innovation, Technological Change, and Growth - - General - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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