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Royalties vs. fees: How do firms pay for foreign technology?

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  • Vishwasrao, Sharmila

Abstract

The theoretical determinants of technology licensing contracts have been extensively studied but empirical evidence is scarce. We assemble a data set of all the foreign technology licensing agreements entered into by manufacturing firms in India between 1989 and 1993. Industry, firm, and contract characteristics are used to explain differences between the forms of payment in licensing contracts. Our findings support theoretical arguments; licensing contracts are more likely to use royalties when sales are relatively high, while increased volatility of sales and greater profitability favor fixed fee contracts. We also find that firms are more likely to use output based payments to control the sale and diffusion of R&D or brand intensive know-how to unaffiliated firms.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 25 (2007)
Issue (Month): 4 (August)
Pages: 741-759

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Handle: RePEc:eee:indorg:v:25:y:2007:i:4:p:741-759

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Web page: http://www.elsevier.com/locate/inca/505551

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References

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  1. Katz, Michael L & Shapiro, Carl, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 567-89, August.
  2. Ethier, W.J. & Markusen, J.R., 1993. "Multinational Firms, Technology Diffusion and Trade," ISER Discussion Paper 0303, Institute of Social and Economic Research, Osaka University.
  3. Gallini, Nancy T, 1984. "Deterrence by Market Sharing: A Strategic Incentive for Licensing," American Economic Review, American Economic Association, vol. 74(5), pages 931-41, December.
  4. Caves, Richard E & Crookell, Harold & Killing, J Peter, 1983. "The Imperfect Market for Technology Licenses," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 45(3), pages 249-67, August.
  5. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
  6. Horstmann, Ignatius J & Markusen, James R, 1987. "Strategic Investments and the Development of Multinationals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 109-21, February.
  7. Michael L. Katz & Carl Shapiro, 1985. "On the Licensing of Innovations," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 504-520, Winter.
  8. Nancy T. Gallini & Brian D. Wright, 1990. "Technology Transfer under Asymmetric Information," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 147-160, Spring.
  9. Preet S Aulakh & S Tamer Cavusgil & M B Sarkar, 1998. "Compensation in International Licensing Agreements," Journal of International Business Studies, Palgrave Macmillan, vol. 29(2), pages 409-419, June.
  10. Nancy T. Gallini & Ralph A. Winter, 1985. "Licensing in the Theory of Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 237-252, Summer.
  11. Sang-Seung Yi, 1998. "Whom to license patented technology," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(3), pages 189-195.
  12. Bousquet, Alain & Cremer, Helmuth & Ivaldi, Marc & Wolkowicz, Michel, 1998. "Risk sharing in licensing," International Journal of Industrial Organization, Elsevier, vol. 16(5), pages 535-554, September.
  13. Magnus Blomström & Ari Kokko & Mario Zejan, 1994. "Host country competition, labor skills, and technology transfer by multinationals," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(3), pages 521-533, September.
  14. Vishwasrao, Sharmila, 1994. "Intellectual property rights and the mode of technology transfer," Journal of Development Economics, Elsevier, vol. 44(2), pages 381-402, August.
  15. van Ophem, Hans & Schram, Arthur, 1997. "Sequential and Multinomial Logit: A Nested Model," Empirical Economics, Springer, vol. 22(1), pages 131-52.
  16. Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 103-35, March.
  17. Beggs, A. W., 1992. "The licensing of patents under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 171-191, June.
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Citations

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Cited by:
  1. Pierce, Andrea & Sen, Debapriya, 2009. "Outsourcing versus technology transfer: Hotelling meets Stackelberg," MPRA Paper 15673, University Library of Munich, Germany.
  2. Aleluia, João & Leitão, João, 2009. "International Entrepreneurship and Technology Transfer: The CDM´s Reality in China," MPRA Paper 16150, University Library of Munich, Germany.
  3. Allain, Marie-Laure & Henry, Emeric & Kyle, Margaret K, 2011. "Inefficiencies in technology transfer: theory and empirics," CEPR Discussion Papers 8206, C.E.P.R. Discussion Papers.
  4. Marie-Laure Allain & Emeric Henry & Margaret Kyle, 2011. "Inefficiencies in the sale of ideas: theory and empirics," Working Papers hal-00639128, HAL.
  5. Lei Yang & Keith E. Maskus, 2008. "Intellectual Property Rights, Technology Transfer and Exports in Developing Countries," CESifo Working Paper Series 2464, CESifo Group Munich.
  6. Manel Antelo, 2010. "Screening vs. signaling in technology licensing," Economic Working Papers at Centro de Estudios Andaluces E2010/05, Centro de Estudios Andaluces.
  7. Manel Antelo, 2009. "On contract duration of royalty licensing contracts," Spanish Economic Review, Springer, vol. 11(4), pages 277-299, December.
  8. San Martín Lizarralde, Marta & Saracho de la Torre, Ana Isabel, 2009. "Royalty Licensing," IKERLANAK 2009-40, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
  9. Wang, Vey & Lai, Chung-Hui, 2011. "Franchise fee, competition and economic growth," Economic Modelling, Elsevier, vol. 28(5), pages 2090-2099, September.
  10. Giebe, Thomas & Wolfstetter, Elmar, 2008. "License auctions with royalty contracts for (winners and) losers," Games and Economic Behavior, Elsevier, vol. 63(1), pages 91-106, May.
  11. Jung Eun Lee & Younghoon Kim & Yeonbae Kim & Donghyuk Choi, 2010. "The Impact of Technology Licensing Payment Mechanisms on Firms' Innovative Performance," TEMEP Discussion Papers 201071, Seoul National University; Technology Management, Economics, and Policy Program (TEMEP), revised Dec 2010.
  12. Bouguezzi, Fehmi & EL ELJ, Moez, 2009. "Vertical Integration and Patent Licensing in Upstream and Downstream Markets," MPRA Paper 22212, University Library of Munich, Germany.
  13. San Martín Lizarralde, Marta & Saracho de la Torre, Ana Isabel, 2012. "Two-part tariff licensing mechanisms," IKERLANAK Ikerlanak;2012-59, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
  14. Poddar, Sougata & Bouguezzi, Fehmi, 2011. "Patent licensing in spatial competition: Does pre-innovation cost asymmetry matter?," MPRA Paper 32764, University Library of Munich, Germany.
  15. BHATTACHARYA, Sudipto & D’ASPREMONT, Claude & GURIEV, Sergei & SEN, Debapriya, 2012. "Cooperation in R&D: patenting, licensing and contracting," CORE Discussion Papers 2012055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Saracho, Ana I., 2011. "Licensing information goods," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 187-199, March.

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