An Examination of Options Embedded in a Firm's Patents: The Value of Dispersion in Citations

Abstract

This paper applies and empirically tests a real options approach to conceptualizing the value of patents. Based on a theorem derived by Merton (1973), we propose that greater dispersion in the citations of a firm's patents represents greater flexibility for the firm to exercise the option rights embedded in the patents and thus enhances the option value of the patents. A test of this proposition using a sample of 128 US-based biotechnology firms found corroborative results.

Citation

Chi, T. and Levitas, E. (2007), "An Examination of Options Embedded in a Firm's Patents: The Value of Dispersion in Citations", Reuer, J.J. and Tong, T.W. (Ed.) Real Options Theory (Advances in Strategic Management, Vol. 24), Emerald Group Publishing Limited, Leeds, pp. 405-427. https://doi.org/10.1016/S0742-3322(07)24015-X