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How Licensing Resolves Hold-Up: Evidence from a Dynamic Panel Data Model with Unobserved Heterogeneity

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Author Info
Siebert, Ralph
von Graevenitz, Georg

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Abstract

This paper is a study of licensing in a patent thicket. In a patent thicket licensing allows firms to avoid hold-up. It will have different effects on firms' R&D incentives depending on whether firms license existing or future patents. Building on a model of a patent portfolio race, firms' choice between these types of licensing contracts is modelled. We find that firms' relationships in product markets and technology space jointly determine the type of licensing contract chosen. We derive several hypotheses and test these. Using data from the semiconductor industry a dynamic panel data model with unobserved heterogeneity and a lagged dependent variable is estimated. A new method suggested by Wooldridge (2005) is employed to estimate a random effects probit model using conditional ML. The hypotheses derived from the theory are confirmed. Based on our results we argue that licensing raises welfare in the patent thicket.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5436.

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Date of creation: Jan 2006
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Handle: RePEc:cpr:ceprdp:5436

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Related research
Keywords: hold-up problem; innovation; licensing; patent race; patent thicket;

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Find related papers by JEL classification:
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L49 - Industrial Organization - - Antitrust Issues and Policies - - - Other
L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment

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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.:
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    Other versions:
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    Other versions:
  5. Carl Shapiro, 2001. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting," NBER Chapters, in: Innovation Policy and the Economy, Volume 1, pages 119-150 National Bureau of Economic Research, Inc. [Downloadable!]
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  17. Bo E. Honoré & Ekaterini Kyriazidou, 2000. "Panel Data Discrete Choice Models with Lagged Dependent Variables," Econometrica, Econometric Society, vol. 68(4), pages 839-874, July.
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  19. Lee, Tom & Wilde, Louis L, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, MIT Press, vol. 94(2), pages 429-36, March. [Downloadable!] (restricted)
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  22. 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!]
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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. Siebert, Ralph & von Graevenitz, Georg, 2006. "Jostling for Advantage: Licensing and Entry into Patent Portfolio Races," CEPR Discussion Papers 5753, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  2. Alberto Galasso, 2007. "Broad Cross-License Agreements andPersuasive Patent Litigation: Theory andEvidence from the Semiconductor Industry," STICERD - Economics of Industry Papers 45, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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