Using Aggregate Market Data to Estimate Patent Value
40 Pages Posted: 2 Mar 2017 Last revised: 25 Oct 2018
Date Written: January 18, 2018
Intellectual property and its protection is one of the most valuable assets for entrepreneurs and firms in the information economy. This article describes a relatively straightforward method for measuring patent value with aggregate market data and the BLP model. We apply the method to United States smartphones. The demand estimates and recovered marginal costs produce sensible simulations of equilibria prices and shares from several hypothetical patent infringements. In one simulation, the presence of near field communication on the dominant firm’s flagship smartphone results in a 26 percent increase in profits per phone. This estimate provides a starting point for establishing a reasonable royalty between the patent holder and the dominant firm in a hypothetical negotiation.
Keywords: intellectual property, random-coefficient logit demand, patent, smartphones
JEL Classification: D43, L96, O31
Suggested Citation: Suggested Citation