Real Option Valuation of the Patent under Competition

Abstract

Abstract: Traditional methods of patent pricing do not consider real option valuation of the patent，leading to the undervaluation of the patents. However, now, the research that applies real option to patent pricing does not consider the impact of rivalry entry on the value of patent option, leading to the overvaluation of the patents. In order to price patents accurately, in considering the effect of rivalry entry on the value of patent option, a real option approach for patent pricing is proposed. This method is applied to analyze the patent pricing with technological progress considered and with technological progress not considered, respectively, for comparison. Also, with competition and without competition, the valuation of patent real option is analyzed. Results show that, in considering the technology progress, the proposed method can accurately price the value of patents.

Key words: patent, real option, competition

Cheng Yi, Zhou Zhuohua. Real Option Valuation of the Patent under Competition[J]. Industrial Engineering Journal , 2011, 14(5): 58-61.

References

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