Information Asymmetry on the Technology Markets: the Role of Patents

Abstract

This paper aims at investigating what happens on technology-driven markets when it is critically necessary to assess and evaluate information about the technology solutions prior to purchase. One of the major difficulties transaction participants face is that they are assessing not just technical properties but also intangible issues regarding the difference between technologies, the future performance of the technology, of the vendor, its behaviour, and other factors. Another major difficulty in the transactions on technology markets is managing the information flow. Here we can find a number of problems: how information about technical solutions is formed, gathered, processed, exchanged and understood from both parties in the transaction. This is where the theory of information asymmetry comes in place. Information asymmetry is the problem preventing communication processes to be effective. A possible mechanism to address the problems information asymmetry created on the technology markets is the intellectual property system in general and patent rights in particular. In this paper we will analyse the hypothesis of using a well developed, well organized in terms of institutions classical market-regulating mechanism such as the patent system. We propose a model for understanding and addressing information asymmetry on the technology markets, using one already existing legislative mechanism, namely patent rights. Our analyses are conducted using the technology markets in general and the software market in particular. These analyses are examined using theories of communication processes and theories of development of the patent system and its functions. The study resulted in the identification of information exchange pattern on the technology market and of the model of information asymmetry on that market. The paper ends by challenging the efficiency of patent rights, which though having the potential to address and solve the problem of information asymmetry on the technology markets, remains problematic and difficult to achieve.