Is There an eBay for Ideas? Insights from Online Knowledge Marketplaces

Abstract:     
The market for knowledge grew dramatically over the past decades. Extant work underscores the factors shaping market efficacy: (a) the cost of searching for innovative knowledge, (b) asymmetric-information between inventors and investors, and (c) the inherent difficulty in maintaining ownership over knowledge. Recently, market transactions have been taking place online, matching disperse owners (entrepreneurs or inventors) and seekers (investors or licensees) of knowledge. This phenomenon constitutes a sharp departure from past practices where transactions tend to materialize around one’s social circle (e.g., venture capitalists’ social ties). We investigate the drivers of market efficacy in a setting where social ties are not available ex-ante, and identify alternative market mechanisms that emerge in such settings. Using a novel hand-collected data for 30 online knowledge marketplaces, we find overwhelming evidence of adverse-selection-mitigating mechanisms (e.g., screening through upfront fees and disclosure requirements). We discuss theoretical explanations that are consistent with the observed mechanisms.

Number of Pages in PDF File: 40

working papers series