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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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  7. 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.
  8. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December.
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  12. 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.
  13. 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.
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  15. 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.
  16. 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.
  17. Sang-Seung Yi, 1998. "Whom to license patented technology," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(3), pages 189-195.
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Citations

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Cited by:
  1. Aleluia, João & Leitão, João, 2009. "International Entrepreneurship and Technology Transfer: The CDM´s Reality in China," MPRA Paper 16150, University Library of Munich, Germany.
  2. San Martín, Marta & Saracho, Ana I., 2010. "Royalty licensing," Economics Letters, Elsevier, vol. 107(2), pages 284-287, May.
    • 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.
  3. Manel Antelo, 2009. "On contract duration of royalty licensing contracts," Spanish Economic Review, Springer, vol. 11(4), pages 277-299, December.
  4. Bouguezzi, Fehmi & EL ELJ, Moez, 2009. "Vertical Integration and Patent Licensing in Upstream and Downstream Markets," MPRA Paper 22212, University Library of Munich, Germany.
  5. 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.
  6. Marie-Laure Allain & Emeric Henry & Margaret Kyle, 2011. "Inefficiencies in the sale of ideas: theory and empirics," Working Papers hal-00639128, HAL.
  7. Poddar, Sougata & Bouguezzi, Fehmi, 2011. "Patent licensing in spatial competition: Does pre-innovation cost asymmetry matter?," MPRA Paper 32764, University Library of Munich, Germany.
  8. 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.
  9. Saracho, Ana I., 2011. "Licensing information goods," International Journal of Industrial Organization, Elsevier, vol. 29(2), pages 187-199, March.
  10. 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.
  11. Lei Yang & Keith E. Maskus, 2008. "Intellectual Property Rights, Technology Transfer and Exports in Developing Countries," CESifo Working Paper Series 2464, CESifo Group Munich.
  12. Pierce, Andrea & Sen, Debapriya, 2009. "Outsourcing versus technology transfer: Hotelling meets Stackelberg," MPRA Paper 15673, University Library of Munich, Germany.
  13. Wang, Vey & Lai, Chung-Hui, 2011. "Franchise fee, competition and economic growth," Economic Modelling, Elsevier, vol. 28(5), pages 2090-2099, September.
  14. 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).
  15. Manel Antelo, 2010. "Screening vs. signaling in technology licensing," Economic Working Papers at Centro de Estudios Andaluces E2010/05, Centro de Estudios Andaluces.
  16. Giebe, Thomas & Wolfstetter, Elmar G., 2007. "License Auctions with Royalty Contracts for (Winners and) Losers," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 199, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

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