Inefficiencies in the sale of ideas: theory and empirics
AbstractThe sale of ideas (e.g. through licensing) facilitates vertical specialization and the division of labor between research and development. This specialization can improve the overall efficiency of the innovative process. However, these gains depend on the timing of the sale: the buyer of an idea should assume development at the stage at which he has an efficiency advantage. We show that in an environment with asymmetric information about the value of the idea and where this asymmetry decreases as the product is developed, the seller of the idea may delay the sale to the more efficient firm, thus incurring higher development costs. We obtain a condition for the equilibrium timing of the sale and examine how factors such as the intensity of competition between potential buyers influence it. Empirical analysis of licensing contracts signed between firms in the pharmaceutical industry supports our theoretical predictions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by HAL in its series Working Papers with number hal-00639128.
Date of creation: 08 Nov 2011
Date of revision:
Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00639128/en/
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
Innovation; Licensing; Market structure; Bargaining; Pharmaceuticals; Biotechnology.;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-05 (All new papers)
- NEP-BEC-2011-12-05 (Business Economics)
- NEP-COM-2011-12-05 (Industrial Competition)
- NEP-CTA-2011-12-05 (Contract Theory & Applications)
- NEP-GTH-2011-12-05 (Game Theory)
- NEP-INO-2011-12-05 (Innovation)
- NEP-IPR-2011-12-05 (Intellectual Property Rights)
- NEP-MIC-2011-12-05 (Microeconomics)
- NEP-TID-2011-12-05 (Technology & Industrial Dynamics)
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.:
- Smith, Howard & Thanassoulis, John, 2006.
"Upstream Competition and Downstream Buyer Power,"
CEPR Discussion Papers
5803, C.E.P.R. Discussion Papers.
- Marie-Laure Allain & Margaret K. Kyle & Emeric Henry, 2011.
"Inefficiencies in technology transfer: theory and empirics,"
Sciences Po publications
8206, Sciences Po.
- 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.
- Choi, J.P., 1995.
"Technology Transfer with Moral Hazard,"
1995_16, Columbia University, Department of Economics.
- Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919.
- Sharmila Vishwasrao, 2004.
"Royalties vs. fees: How do firms pay for foreign technology?,"
04023, Department of Economics, College of Business, Florida Atlantic University, revised Sep 2006.
- Vishwasrao, Sharmila, 2007. "Royalties vs. fees: How do firms pay for foreign technology?," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 741-759, August.
- Josh Lerner & Ulrike Malmendier, 2005.
"Contractibility and the Design of Research Agreements,"
NBER Working Papers
11292, National Bureau of Economic Research, Inc.
- Josh Lerner & Ulrike Malmendier, 2010. "Contractibility and the Design of Research Agreements," American Economic Review, American Economic Association, vol. 100(1), pages 214-46, March.
- Lerner, Josh & Merges, Robert P, 1998. "The Control of Technology Alliances: An Empirical Analysis of the Biotechnology Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 125-56, June.
- Pedro Mendi, 2003.
"The Structure of Payments in Technology Transfer Contracts: Evidence from Spain,"
Faculty Working Papers
05/03, School of Economics and Business Administration, University of Navarra.
- Pedro Mendi, 2005. "The Structure of Payments in Technology Transfer Contracts: Evidence from Spain," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(2), pages 403-429, 06.
- McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March.
- Sean Nicholson & Patricia M. Danzon & Jeffrey S. McCullough, 2002.
"Biotech-Pharmaceutical Alliances as a Signal of Asset and Firm Quality,"
NBER Working Papers
9007, National Bureau of Economic Research, Inc.
- Sean Nicholson, 2005. "Biotech-Pharmaceutical Alliances as a Signal of Asset and Firm Quality," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1433-1464, July.
- Joshua S. Gans & David H. Hsu & Scott Stern, 2008.
"The Impact of Uncertain Intellectual Property Rights on the Market for Ideas: Evidence from Patent Grant Delays,"
INFORMS, vol. 54(5), pages 982-997, May.
- Joshua S. Gans & David H. Hsu & Scott Stern, 2007. "The Impact of Uncertain Intellectual Property Rights on the Market For Ideas: Evidence From Patent Grant Delays," NBER Working Papers 13234, National Bureau of Economic Research, Inc.
- Beggs, A. W., 1992. "The licensing of patents under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 171-191, June.
- 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.
- Anton, James J & Yao, Dennis A, 2002. "The Sale of Ideas: Strategic Disclosure, Property Rights, and Contracting," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 513-31, July.
- Anand, Bharat N & Khanna, Tarun, 2000. "The Structure of Licensing Contracts," Journal of Industrial Economics, Wiley Blackwell, vol. 48(1), pages 103-35, March.
- Higgins, Matthew J., 2007. "The allocation of control rights in pharmaceutical alliances," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 58-75, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.