How Do Firms Utilize the Deferred Patent Examination System? Evidence from Korea

This paper investigates firm behaviors on examination request under the deferred patent examination system in Korea. We examine firm decisions on whether and when to request patent examinations when they face both uncertainty about inven- tion¡¯s value and market competition. We find that the examination request in Korea has an interesting bi-polar distribution, and both uncertainty about an invention¡¯s value and market competition have significant impacts on firm¡¯s decision for exam- ination request. Applicants tend to utilize option value of waiting when uncertainty is high, but market competition attenuates the option value: the higher the com- petition, the less likely applicants are to delay or forego examination. Our study extends the empirical literature on deferred examination system but also provides a more comprehensive understanding on the irreversible investment decision under both uncertainty and competition.