Active markets for intellectual property (IP) are desirable because they facilitate the reallocation of new inventions to those who can best commercialize them. Therefore, active IP markets provide an incentive for inventors and specialized startups to invent in the first place, which promotes economic growth. However, IP markets are thought to be relatively inefficient. They are mostly decentralized and opaque markets, with substantial search frictions. Although non-practicing entities (NPEs) play an intermediary role to reduce such frictions, their operations are costly and their net effect on innovation and the IP market’s efficiency is unclear. Against this background, I structurally estimate a search-and-bargaining model of the brokered patent market. The model suggests that, compared to the Walrasian benchmark, the brokered patent market is relatively inefficient and NPEs’ net effect on patent market efficiency is negative.
Contact person: David Heller