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Licensing decision: a rent dissipation lens applied to product market competition, openness to external knowledge and exogenous sunk costs

Author

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  • Solon Moreira
  • Goretti Cabaleiro
  • Toke Reichstein

Abstract

The fear of rent dissipation has been proposed as the main reason firms are hesitant to enter markets for technology. In this paper we investigate conditions under which firms are particularly reluctant to out-license their technologies due to shifts in the relative magnitudes between potential rent dissipation and revenue effects. Specifically, we offer theoretical arguments and empirical evidence suggesting that firms operating under higher product market competition are more reluctant to license their technologies. Firms’ openness to external knowledge, while having a direct positive association with greater licensing rates, also partially mitigates the negative effect of increasing product market competition. Exogenous sunk costs, however, increase firms’ reluctance to out-license and also further fuel the negative association between out-licensing and product market competition. The empirical investigation builds on a sample of 227 licensors involved in licensing contracts in the US pharmaceutical industry from 1986 to 2005. The study has substantial implications for management, research, and policymakers.

Suggested Citation

  • Solon Moreira & Goretti Cabaleiro & Toke Reichstein, 2019. "Licensing decision: a rent dissipation lens applied to product market competition, openness to external knowledge and exogenous sunk costs," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 28(4), pages 773-792.
    • Handle: RePEc:oup:indcch:v:28:y:2019:i:4:p:773-792.
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    File URL: http://hdl.handle.net/10.1093/icc/dty036
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    Citations

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    Cited by:

    1. Solon Moreira & Thomas Maximilian Klueter & Stefano Tasselli, 2020. "Competition, Technology Licensing-in, and Innovation," Organization Science, INFORMS, vol. 31(4), pages 1012-1036, July.
    2. Moreira, Solon & Klueter, Thomas Maximilian & Asija, Aman, 2023. "Market for technology 2.0? Reassessing the role of complementary assets on licensing decisions," Research Policy, Elsevier, vol. 52(7).
    3. Ener, Hakan, 2022. "How does CEO technical expertise influence licensing-out at technology ventures?," Technovation, Elsevier, vol. 114(C).
    4. Gnangnon, Sèna Kimm, 2023. "Do Aid for Trade flows affect Technology Licensing in Recipient Countries?," EconStor Preprints 273419, ZBW - Leibniz Information Centre for Economics.

    More about this item

    JEL classification:

    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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