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Licensing the Market for Technology

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Author Info
Arora, Ashish
Fosfuri, Andrea

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Abstract

In technology-based industries, incumbent firms often license their technology to other firms that will potentially compete with them. Such a strategy is difficult to explain within traditional models of licensing. This paper extends the literature on licensing by relaxing the assumption of a monopolist technology holder. We develop a model with many technological trajectories for the production of a differentiated good. We find that competition in the market for technology induces licensing of innovations, and that the number of licenses can be inefficiently large. A strong testable implication of our theory is that the number of licenses per patent holder decreases with the degree of product differentiation.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2284.

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Date of creation: Nov 1999
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Handle: RePEc:cpr:ceprdp:2284

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Related research
Keywords: Licensing; Market Structure; Oligopoly Theory;

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Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Kamien, Morton I & Tauman, Yair, 1986. "Fees versus Royalties and the Private Value of a Patent," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 471-91, August. [Downloadable!] (restricted)
  2. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June. [Downloadable!] (restricted)
  3. David Besanko & Martin K. Perry, 1993. "Equilibrium Incentives for Exclusive Dealing in a Differentiated Products Oligopoly," RAND Journal of Economics, The RAND Corporation, vol. 24(4), pages 646-668, Winter. [Downloadable!] (restricted)
  4. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter. [Downloadable!] (restricted)
  5. Joshua S. Cans & Scott Stern, 2000. "Incumbency and R&D Incentives: Licensing the Gale of Creative Destruction," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 9(4), pages 485-511, December. [Downloadable!] (restricted)
    Other versions:
  6. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February. [Downloadable!] (restricted)
    Other versions:
  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. [Downloadable!] (restricted)
  8. Suzumura, Kotaro & Kiyono, Kazuharu, 1987. "Entry Barriers and Economic Welfare," Review of Economic Studies, Blackwell Publishing, vol. 54(1), pages 157-67, January. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
  10. Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1988. "Appropriating the Returns from Industrial R&D," Cowles Foundation Discussion Papers 862, Cowles Foundation, Yale University. [Downloadable!]
  11. Rockett, Katharine, 1990. "The quality of licensed technology," International Journal of Industrial Organization, Elsevier, vol. 8(4), pages 559-574, December. [Downloadable!] (restricted)
  12. Katharine E. Rockett, 1990. "Choosing the Competition and Patent Licensing," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 161-171, Spring. [Downloadable!] (restricted)
  13. Arora, Ashish, 1997. "Patents, licensing, and market structure in the chemical industry," Research Policy, Elsevier, vol. 26(4-5), pages 391-403, December. [Downloadable!] (restricted)
    Other versions:
  14. Fershtman, Chaim & Judd, Kenneth L, 1987. "Equilibrium Incentives in Oligopoly," American Economic Review, American Economic Association, vol. 77(5), pages 927-40, December. [Downloadable!] (restricted)
    Other versions:
  15. Teece, David J, 1977. "Technology Transfer by Multinational Firms: The Resource Cost of Transferring Technological Know-how," Economic Journal, Royal Economic Society, vol. 87(346), pages 242-61, June. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Bernard Guilhon, 2004. "Markets for knowledge: problems, scope, and economic implications," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 13(2), pages 165-181, March. [Downloadable!] (restricted)
  2. Andrea Fosfuri, 2004. "The Licensing Dilemma: Understanding The Determinants Of The Rate Of Licensing," Business Economics Working Papers wb041507, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
  3. Alfonso Gambardella & Paola Giuri & Alessandra Luzzi, 2006. "The Market for Patents in Europe," LEM Papers Series 2006/04, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
    Other versions:
  4. Fabrizio Cesaroni, 2001. "Technology Strategies in the Knowldge Economy. The Licensing Activity of Himont," LEM Papers Series 2001/18, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
  5. Kenta Nakamura & Hiroyuki Odagiri, 2005. "R&D boundaries of the firm: An estimation of the double-hurdle model on commissioned R&D, joint R&D, and licensing in Japan," Economics of Innovation and New Technology, Taylor and Francis Journals, vol. 14(7), pages 583-615, October. [Downloadable!] (restricted)
  6. Paola Giuri & Alessandra Luzzi, 2005. "Commercialisation Strategies of Technology based European SMEs: Markets for Technology vs. Markets for Products," LEM Papers Series 2005/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
  7. Neus Palomeras, 2005. "An Analysis of Pure-revenue Licensing," Faculty Working Papers 12/05, School of Economics and Business Administration, University of Navarra. [Downloadable!]
  8. Nisvan Erkal, 2004. "Optimal Licensing Policy in Differentiated Industries," Department of Economics - Working Papers Series 894, The University of Melbourne. [Downloadable!]
    Other versions:
  9. Lee Davis, 2006. "Licensing Strategies of the Enterprising - but Vulnerable - "Intellectual Property" Vendors," DRUID Working Papers 06-12, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies. [Downloadable!]
  10. Fabrizio Cesaroni & Paola Giuri, 2005. "Intellectual Property Rights and Market Dynamics," LEM Papers Series 2005/10, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
  11. Czarnitzki, Dirk & Kraft, Kornelius, 2005. "License Expenditures of Incumbents and Potential Entrants : An Empirical Analysis of Firm Behavior," ZEW Discussion Papers 05-35, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  12. Hagedoorn, John & Lorenz-Orlean, Stefanie & Kranenburg, Hans, 2007. "Inter-firm technology transfer: Partnership-embedded licensing or standard licensing agreements?," UNU-MERIT Working Paper Series 006, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology. [Downloadable!]
    Other versions:
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