Dynamic Model of Market of Patents and Equilibria in Technology Stocks

Kryazhimskiy, A.V. & Watanabe, C. (2000). Dynamic Model of Market of Patents and Equilibria in Technology Stocks. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-00-022

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Abstract

The paper presents a dynamic model of trading on market of patents. It is assumed that each firm participating in market produces its own technologies, whereas its manufacturing sector utilizes both originally produced technologies and those produced in other firms. The firms are therefore interdependent through the technology stocks used in manufacturing, which provides a basis for the emergence of market of patents. In our model a firm has three actions in market, "prior announcement, offering payoffs, and making decisions." Three-stage trading is repeated periodically and thus drives the evolution of the firms' technology stocks. We show that, under reasonable assumptions, the proposed pattern allows the firms to act so that, first, their individual decisions are subjectively best in every period of trading, and, second, current combinations of their technology stocks gradually approach a state which maximizes the total profit of the firms' community. An important feature of the model is that the described market operations imply the minimum exchange in individual information.

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