Technology Market Transactions

Technology Market Transactions

Auctions, Intermediaries and Innovation

Frank Tietze

Frank Tietze delivers an in-depth discussion of the impact of empirical results upon transaction cost theory, and in so doing, provides the means for better understanding technology transaction processes in general, and auctions in particular. Substantiating transaction cost theory with empirical auction data, the author goes on to explore how governance structures need to be designed for effective distributed innovation processes. He concludes that the auction mechanism is a viable transaction model, and illustrates that the auction design, as currently operated by market intermediaries, requires thorough adjustments. Various options for possible improvements are subsequently prescribed.

Chapter 5: Auctions for Technology Transactions

Frank Tietze

Subjects: economics and finance, economics of innovation, intellectual property, innovation and technology, economics of innovation, intellectual property, technology and ict


5.1 INTRODUCTION TO AUCTION THEORY Auctions are among the oldest negotiation mechanisms for price formation; they appear in various fields and in multiple contexts to trade a wide range of assets. Traditionally, among the most prominent assets traded in auctions are art, antiques, and wine.1 However, in recent years, auctions have been applied for an increasing range of tangible (for example, second hand industrial machinery exported to third world countries, real estate properties, etc.2) as well as intangible assets, including, for example, various types of services (for example, craftsmen services for house repairs, travel services, software developing services, and problem solving services) or IP assets (for example, patents and 3G licenses).3 Recently, auctions have been developed by TMI to facilitate technology transactions which firms might use for the more efficient creation of innovations. In the context of ETE, Birkenmeier (2003) was among the few scholars to label auctions a ‘marketbased approach’ to determine technologies’ values in addition to other approaches (for example, existing market prices, and exact utility-based approaches). Although auctions are among the oldest and most widely used trading mechanisms, their theoretical foundations have just recently been established. According to Berz (2007), Milgrom (2005), Klemperer (2004), and Vickrey (1961) auction theory was largely derived from game theory. The widespread use of auctions as a trade or a negotiation mechanism for price formation, has drawn scholars’ attention to this field and led to the foundation of a new field in economics some fifty years ago. According to Berz (2007)...

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