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Inefficiencies in technology transfer: theory and empirics

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  • Marie-Laure Allain

    (Department of Economics, Ecole Polytechnique)

  • Margaret K. Kyle
  • Emeric Henry

    (D├ępartement d'├ęconomie)

Abstract

Markets for technology can promote innovation by allowing for division of labor in research and development. Some firms may specialize in the discovery of ideas, while others have a comparative advantage in later stages of development and marketing. However, these gains depend on the timing of technology transfer: the buyer of an idea should take over 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, deviations from the optimal timing of technology transfer will occur. We obtain a condition for the optimal timing to take place and show that the intensity of competition between potential buyers has countervailing effects on this condition. An empirical analysis of licensing contracts signed between biotechnology firms and large pharmaceutical firms confirms our theoretical predictions.

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Bibliographic Info

Paper provided by Sciences Po in its series Sciences Po publications with number 8206.

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Date of creation: Jan 2011
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Handle: RePEc:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09iatrn4log

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Keywords: innovation; licensing and market structure;

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References

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  1. Puri, Manju & Robinson, David T., 2007. "Optimism and economic choice," Journal of Financial Economics, Elsevier, vol. 86(1), pages 71-99, October.
  2. Ilan Guedj & David Scharfstein, 2004. "Organizational Scope and Investment: Evidence from the Drug Development Strategies and Performance of Biopharmaceutical Firms," NBER Working Papers 10933, National Bureau of Economic Research, Inc.
  3. 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.
  4. Joshua Gans & Catherine de Fontenay, 2004. "Vertical Integration in the Presence of Upstream Competition," Econometric Society 2004 North American Winter Meetings 7, Econometric Society.
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  8. 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.
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  12. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.
  13. James J. Anton & Dennis A. Yao, 2002. "The Sale of Ideas: Strategic Disclosure, Property Rights, and Contracting," Review of Economic Studies, Oxford University Press, vol. 69(3), pages 513-531.
  14. Higgins, Matthew J., 2007. "The allocation of control rights in pharmaceutical alliances," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 58-75, March.
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  17. Choi, Jay Pil, 2001. "Technology transfer with moral hazard," International Journal of Industrial Organization, Elsevier, vol. 19(1-2), pages 249-266, January.
  18. Beggs, A. W., 1992. "The licensing of patents under asymmetric information," International Journal of Industrial Organization, Elsevier, vol. 10(2), pages 171-191, June.
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Cited by:
  1. Simon Wakeman, 2012. "How does obtaining intellectual property rights impact technology commercialization strategy for start-up innovators? Reconciling the effects on licensing vs. financing," ESMT Research Working Papers ESMT-12-03 (R1), ESMT European School of Management and Technology, revised 11 Jul 2012.
  2. Marie-Laure Allain & Emeric Henry & Margaret Kyle, 2011. "Inefficiencies in the sale of ideas: theory and empirics," Working Papers hal-00639128, HAL.

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