DP4891 Intermediation in Innovation

Author(s): Heidrun C. Hoppe, Emre Ozdenoren
Publication Date: February 2005
Keyword(s): innovation, Intermediation, market microstructure, matching, patent licensing, uncertainty
JEL(s): D40, D80, L12, L13, O32
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=4891

The paper offers a new theoretical framework to examine the role of intermediaries between creators and users of new inventions. We find that uncertainty about the profitability of investing in new inventions generates a basis for intermediation. An intermediary may provide an opportunity to economize on a critical component of efficient investment decisions - the expertise to sort `profitable' from `unprofitable' inventions. Our findings may help explain the surge in university patenting and licensing since the Bayh-Dole Act of 1980. The study also identifies several limitations to the potential efficiency of intermediation in innovation.