Dissertation
Optimal strategies in network-driven markets: patent licensing with network goods and quality regulation in crowdfunding platforms
University of Iowa
Doctor of Philosophy (PhD), University of Iowa
Summer 2024
DOI: 10.25820/etd.007613
Abstract
This dissertation explores strategic economic decisions in network-driven markets, focusing on two primary areas: the optimal licensing strategies for patented technologies and the internal policy management of crowdfunding platforms. It investigates how these strategies affect market efficiency, technology diffusion, and overall social welfare, providing a nuanced understanding of network effects in modern economic environments.
In the first chapter, Patent Licensing for Single-network Goods, we explore the role of network effects on licensing schemes and technology diffusion. In markets where products exhibit direct network effects—such as telecommunications or software where the value of a product increases as more users adopt it—deciding the optimal licensing strategy for patented technologies is crucial. Focusing on industry-wide networks, we analyze how these effects influence the optimal licensing strategies for an external lab with advanced technology. The study integrates foundational theories of patent licensing and network externalities to demonstrate that network effects significantly alter traditional licensing outcomes, impacting licensing revenue, firm profits, and social welfare. Comparing fixed-fee and royalty licensing across different network scenarios, the findings suggest that while both schemes improve social welfare, fixed-fee licensing tends to yield higher industry output and lab revenue, thus offering greater consumer benefits. We further extend the analysis by introducing a network strength parameter, bridging the classical licensing and industry-wide network externalities models. This extension reveals that when network effects are introduced (\$0<b<1\$), there may be scenarios where royalty licensing becomes preferable under drastic innovation due to higher industry output and consumer benefits, diverging from classical licensing literature. However, this chance disappears for \$b=1\$, as only non-drastic innovations exist under fixed-fee licensing, making fixed-fee licensing always preferred. This research contributes to understanding technological innovations within market structures shaped by network externalities, providing valuable insights for economic policy and business strategy in high-tech sectors.
In the next chapter, Patent Licensing for Network Goods: Firm-Specific versus Single Network, we further examine the optimal patent licensing strategies within industries characterized by firm-specific networks and assess the impact on technology diffusion and licensing dynamics. It builds upon foundational theories established in the previous chapter, specifically contrasting these strategies against both traditional Cournot competition and industry-wide single network scenarios. The primary analysis employs the Fulfilled Expectation Cournot Equilibrium (FECE) to evaluate how various licensing mechanisms—fixed fee versus royalty—affect market outcomes, such as firm profitability, consumer surplus, and overall social welfare in a firm-specific network setting. The study reveals that the strength of network effects plays a pivotal role in determining the optimal licensing strategy. In firm-specific networks, weaker network effects mean that licensing strategies resemble those in traditional non-network markets, often leading to partial licensing and competitive disadvantages for unlicensed firms. Conversely, in industry-wide networks, strong network effects significantly enhance the speed of technology diffusion and increase the overall revenue from licensing. The research highlights that fostering product compatibility can be a strategic move to leverage network effects, boost innovation, and improve market performance.
In the last chapter, Crowdfunding Platform Policies: Balancing Quality Regulation and Market Efficiency, crowdfunding platforms, such as Kickstarter and Indiegogo, play a critical role in the financial ecosystem by connecting project creators with potential backers. These platforms often implement quality regulation policies to ensure that only viable and trustworthy projects are listed. This chapter examines how these internal policies impact the platform's revenue, project diversity, and social welfare. Utilizing a theoretical framework, the study challenges the assumption that stricter quality controls always enhance market outcomes. Instead, the findings suggest that while improving project quality can attract more backers and enhance funding success, it doesn't necessarily lead to an increase in the size of the backer network or the platform's profits. This, in turn, could potentially limit market inclusivity and stifle innovation. We emphasize these results are dependent on specific market conditions: the fraction of high-quality projects and the backer's quality-preference parameter. We show numerically through the simulation of various scenarios that quality regulation to make the platform profitable and increase the size of backers' networks is very sensitive to the underpinning factors. Our result has immediate and direct policy implications for managers of crowdfunding platforms and policymakers in that quite a subtle touch of regulation is essential for attaining desirable economic outcomes in this fast-developing crowdfunding landscape.
Collectively, this thesis provides a comprehensive analysis of how network effects and internal policy decisions shape economic strategies in markets driven by innovation and connectivity. The insights are valuable for market players such as platform managers, technology licensors, and policymakers navigating the complexities of network-driven economic environments.
Details
- Title: Subtitle
- Optimal strategies in network-driven markets: patent licensing with network goods and quality regulation in crowdfunding platforms
- Creators
- Hyunki Min
- Contributors
- Rabah Amir (Advisor)Nicholas Yannelis (Committee Member)Anne P Villamil (Committee Member)Seongjoo Min (Committee Member)Hyeong-Tak Lee (Committee Member)
- Resource Type
- Dissertation
- Degree Awarded
- Doctor of Philosophy (PhD), University of Iowa
- Degree in
- Economics
- Date degree season
- Summer 2024
- Publisher
- University of Iowa
- DOI
- 10.25820/etd.007613
- Number of pages
- xii,146 pages
- Copyright
- Copyright 2024 Hyunki Min
- Language
- English
- Date submitted
- 07/22/2024
- Description illustrations
- illustrations, tables, graphs
- Description bibliographic
- Includes bibliographical references (pages 143-146).
- Public Abstract (ETD)
- In today’s interconnected economy, understanding how network effects and internal policy decisions impact market dynamics is crucial for market participants. This dissertation explores these interactions within two distinct contexts: regulating crowdfunding platforms and licensing patented technologies. Each chapter provides in-depth insights into how network structures and internal policies influence market efficiency, technology spread, and overall economic welfare. In Chapter 1, Patent Licensing for Single-Network Goods, we explore the optimal licensing strategies for the lab under the industry-wide single network. In markets where the value of a product increases as more people use it—like smartphones that all communicate over the same network standards—deciding the optimal way to li- cense patents becomes crucial. This chapter examines the choice between fixed-fee and royalty-based licensing for technologies in such networked markets. By analyz- ing markets where products are universally compatible, the study finds that fixed-fee licensing often results in higher social benefits and quicker technology adoption than royalty licensing. This is because the inherent network effects in these markets am- plify the product’s value as more users come on board. The research suggests that companies and licensors should carefully consider these network dynamics when set- ting up their licensing agreements to maximize both their profits and the benefits to society. In Chapter 2, Patent Licensing for Network Goods: Firm-Specific versus Single Network, we explore how patent licensing works in two different types of network environments: firm-specific networks and industry-wide networks. Firm-specific net- works, like those in the video game console market or certain software ecosystems, involve products that are compatible only with a single company’s offerings. On the other hand, industry-wide networks, such as the universal USB standard, feature products that work across all firms in the market. The study shows that in mar- kets with firm-specific networks, licensing strategies often mirror those in traditional non-networked markets, leading to competitive disadvantages for companies that do not adopt the licensed technology. However, in industry-wide networks, where prod- ucts are widely compatible, licensing strategies benefit from stronger network effects, speeding up the spread of technology and boosting licensing revenues. This finding emphasizes the strategic importance of fostering product compatibility to harness network effects and drive market-wide inovation. In Chapter 3, How Crowdfunding Platforms’ Policies Shape Market Outcomes, crowdfunding platforms like Kickstarter and Indiegogo connect entrepreneurs seeking funding and individuals willing to support innovative projects. These platforms often implement intnernal quality control policies to maintain the quality and trustworthiness of the projects listed. This chapter investigates the effects of such policies on the platform’s profitability, the diversity of projects, and overall market efficiency. Contrary to popular belief, stricter quality regulations do not always lead to better outcomes. While they can attract more backers and increase funding success rates, they may also limit the variety of projects available, reducing market inclusivity and stifling innovation. This study highlights the delicate balance platform managers must strike in their quality policies to ensure both revenue growth and a vibrant, diverse market. This dissertation offers valuable insights into how internal policies and network effects influence economic strategies in crowdfunding platforms and patent licensing. The results provide practical guidance for platform operators, technology licensors, and policymakers aiming to optimize their approaches in network-driven markets.
- Academic Unit
- Economics
- Record Identifier
- 9984697940702771
Metrics
2 Record Views