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How to License Intangible Property

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  • Michael L. Katz
  • Carl Shapiro

Abstract

We examine the optimal licensing strategy of a research lab selling to firms who are product market competitors. We consider an independent lab as well as a research joint venture. We show that (1) demands are interdependent and hence the standard price mechanism is not the profit-maximizing licensing strategy; (2) the seller's incentives to develop the innovation may be excessive; (3) the seller's incentives to disseminate the innovation typically are too low; (4) larger ventures are less likely to develop the innovation, and more likely to restrict its dissemination in those cases where development occurs; and (5) a downstream firm that is not a member of the research venture is worse off as a result of the innovation.

Suggested Citation

  • Michael L. Katz & Carl Shapiro, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(3), pages 567-589.
    • Handle: RePEc:oup:qjecon:v:101:y:1986:i:3:p:567-589.
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    File URL: http://hdl.handle.net/10.2307/1885697
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