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Coordinating Inventive and Innovative Decisions through Markets with Prices: A Experimental Study of Patent Markets with Transparent Prices



    (Jönköping International Business School, KTH, George Mason University)

The patent system makes organized markets in patents with transparent prices possible. Such prices are here investigated as “signals” for inventors and innovators alike of valuable “technology areas”, in an experimental study. They inform decisions of specialized “firms” on allocation of resources for invention given a search space of induced technology values. The traditional hierarchical model of coordinating invention and innovation in a vertically integrated firm is replaced by coordination of these activities among specialized firms through a market with prices. The experimental study builds on a study focusing on price mechanisms with exogenous technology values to a study of an economic environment with “endogenous” technology values. The results suggest that coordination clearly takes place but differs considerably between the institutions and patent validity tested (a 3 x 2 design). As with the price study, demand-side bidding in both dimensions of the linear contract appears to yield the broadest search scope, and thus the best chances for the allocation of resources for invention. Multiple end-states are observed, especially for institutions with less demand-side bidding, indicating imprecise price signals for institutions similar to today’s personal exchange. Coordination with prices appears to increase the dynamic gains of the patent system through price information to reduce or better inform about the risk in investments in new technology.

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Paper provided by Jönköping International Business School in its series JIBS Working Papers with number 2010-14.

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Length: 20 pages
Date of creation: 01 Feb 2011
Date of revision:
Handle: RePEc:hhb:hjacfi:2010_014
Contact details of provider: Postal: Jönköping International Business School, P.O. Box 1026, SE-551 11 Jönköping, Sweden
Phone: 036-157700
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