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The Licensing Dilemma: Understanding The Determinants Of The Rate Of Licensing

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Author Info
Andrea Fosfuri ()
Abstract

Licensing entails a tradeoff: licensing payments net of transaction costs (revenue effect) have to be balanced against the lower price-cost margin and/or reduced market share that the increased competition (profit dissipation effect) from the licensee implies. We argue that the presence of multiple technology holders, who compete in the market for technology, changes such tradeoff and triggers a more aggressive licensing behavior. To test our theory we analyze technology licensing by large chemical firms during the period 1986-96. We find that the rate of licensing is initially increasing and then decreasing in the number of potential technology suppliers, negatively related to the licensor’s market share and to the degree of product differentiation.

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Paper provided by Universidad Carlos III, Departamento de Economía de la Empresa in its series Business Economics Working Papers with number wb041507.

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Date of creation: Feb 2004
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Handle: RePEc:cte:wbrepe:wb041507

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  3. Arora, Ashish & Fosfuri, Andrea, 2003. "Licensing the market for technology," Journal of Economic Behavior & Organization, Elsevier, vol. 52(2), pages 277-295, October. [Downloadable!] (restricted)
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  4. Oxley, Joanne E, 1997. "Appropriability Hazards and Governance in Strategic Alliances: A Transaction Cost Approach," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(2), pages 387-409, October.
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  7. Ashish Arora, 1996. "Patents, Licensing, And Market Structure In The Chemical Industry," Industrial Organization 9605003, EconWPA. [Downloadable!]
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  8. Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Blackwell Publishing, vol. 48(1), pages 103-35, March. [Downloadable!] (restricted)
  9. Ashish Arora & Andrea Fosfuri & Alfonso Gambardella, 2004. "Markets for Technology: The Economics of Innovation and Corporate Strategy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511819, December.
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  1. Ralph Siebert & Georg von Graevenitz, 2006. "How Licensing Resolves Hold-Up: Evidence from a Dynamic Panel Data Model with Unobserved Heterogeneity," Discussion Papers 105, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
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  2. 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!]
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