Study On The Patent Investment Decisions Based On Option Games

In the patent-related investment activities as patent R&D, patent purchase and patentcommercialization, competition and many uncertainties from internal and externalenvironment will affect the decisions of the enterprise' patent investment. Theuncertaities in patent technology and patent value, incomplete information about themarket prospect of the patent can affect the real options value of the patent and can inrum cause the enterprise the motivation and intention of waiting and delaying ininvestment. At the same time, the exclusive and proprietary characteristics of patentmake enterprises scramble for patent and compete against each other more violently. Inorder to beat the rivals, an enterprise must give up some or all options value, andadvance the time of investment. With various uncertainties, this option game in patentinvestment will produce processes and results with different features. Based on optiongame theoretical models and methods, this dissertation studies patent investmentdecisions. The main contents are as follows.1. As to incomplete information patent race, when considering the first moveradvantage only, the uncertainties that will influence the enterprises' patent R&Dinvestment decisions include: information uncertainties as incomplete information aboutthe future prospect of the patent combined with the external randomly happening events,and technical uncertainties as whether the R&D can succeed. By considering incompleteinformation, technical uncertainty and competition, this dissertation develops aninvestment decision-making model based on real options analysis, and obtains thecritical beliefs needed for patent R&D investments of single enterprise and duopolyenterprises respectively, and further analyzes the equilibrium types and relatedconditions that may appear in the patent race between two symmetric enterprises. Whenfirst and second mover advantages exist in the patent race simultaneously and theselevels would determine the equilibrium types arises in the game of investment timingfor patent R&D between two symmetric enterprises as well as the investment decisionin the process. Under incomplete information and technical uncertainty, it is essential tointroduce information spillovers and lag effect for the followers and leaders to occupy the second and first mover advantages respectively. Through calculation and analysis ofvarious optimal investment critical beliefs, it is shown that both a preemption game anda war of attrition can arise for specific parameters of the model. The longer the lag timefor information spillovers will be, the smaller the technical uncertainty will be; thefaster the random signal received will be, the higher the quality of the signal will be;and the leader's first mover advantage will be more apparent, the possibility of thepreemption game will be higher. Contrarily, the follower's second mover advantage willbe more apparent, and the possibility of the war of attrition will be higher.2. As to memorable patent race, by introducing the non-homogeneous Poissonprocess and considering the "leaning effect" or "memorable effect" in firms' R&Dactivities, this dissertation studies patent race formed by two firms and a risky patentR&D project. The decision of a single firm on investment timing and the memorablepatent race in non-cooperative game are analyzed respectively. It is shown that the"memorable effect" results in a decrease in the firm's investment critical value, andwhether the value of the option to wait in the continuous area or the value of the projectafter option exercising in the stopped area is more than that in the memoryless case.Furthermore, the fact that the value of the leader always exceeds that of the followerenhances the firms' motives to invest in preemption, and results in decreases in theircritical values for investment, and finally leads to a simultaneous investmentequilibrium with relatively low patent value, which would not have liked to be acceptedby the two parties in the race.3. As to purchasing investment of patent, considering incomplete information andcompetition, and further analyzes the equilibrium types and generation conditions mayappear from the competition purchasing aimed at a same patent between two symmetricenterprises. The result shows that the power of competition and inherent characteristicof patent, the "winner takes all",not only leads the critical belief needed for purchasingpatent decreases,but also the follower's second mover advantages usually caused in"information spillover effect" generated by the leader's investment won't be existenced;Simultaneity, the probability of a wrong decision increases with it.4. As to patent commercialization investment, limited patent breadth makes patentcommercial value influenced by competition as well. Aimed at patent of duopolyenterprises with same emerging market and different market performance, it is advised to establish an investment timing decision-making option game model and analyzedecision feature of enterprise patent commercialization investment. The results showthat the dissymmetry degree of patent will decide equilibrium type of game that duopolyenterprises in patent commercialization investment timing decision-making.5. As to social welfare in patent investment, considering the different impacts ofpatent investment strategies on enterprise values and consumer surplus result indeferring impacts of patent investment decisions on social welfare. By combining theinvestment option game model and the consumer surplus model, this dissertationobtains the total investment NPV and consumer surplus under both modes ofnon-cooperative game (patent race) and cooperative game for two asymmetricalenterprises. The dynamic characteristics of social welfare and the influential factors areanalyzed and relevant innovative policies are put forward. The result shows if the targetis the optimization of social welfare, the less the heterogeneity of R&D capabilities is,the better the patent growth prospect is, the smaller the risk free interest rate is, and thelower the quality of the patent product is, policies that are more conducive tocooperative R&D modes should social planners come up with. Contrarily, policiesencouraging competition should be made.