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

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  • Siebert, Ralph
  • von Graevenitz, Georg

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.

Suggested Citation

  • Siebert, Ralph & von Graevenitz, Georg, 2006. "How Licensing Resolves Hold-Up: Evidence from a Dynamic Panel Data Model with Unobserved Heterogeneity," CEPR Discussion Papers 5436, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5436
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    Citations

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    Cited by:

    1. Galasso, Alberto, 2007. "Broad cross-license agreements and persuasive patent litigation: theory and evidence from the semiconductor industry," LSE Research Online Documents on Economics 6718, London School of Economics and Political Science, LSE Library.
    2. 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.
    3. 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.
    4. Iain M. Cockburn & Megan J. MacGarvie & Elisabeth Müller, 2010. "Patent thickets, licensing and innovative performance," Industrial and Corporate Change, Oxford University Press, vol. 19(3), pages 899-925, June.
    5. Haizhen Lin, 2010. "Do Minimum Quality Standards Improve Quality? A Case Study of the Nursing Home Industry," Working Papers 2010-01, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    6. Mueller, Elisabeth & Cockburn, Iain M. & MacGarvie, Megan, 2013. "Access to intellectual property for innovation: Evidence on problems and coping strategies from German firms," Research Policy, Elsevier, vol. 42(2), pages 529-541.
    7. Christian Jaag, 2013. "Intellectual Property Rights and the Future of Universal Service Obligations in Communications," Working Papers 0040, Swiss Economics.

    More about this item

    Keywords

    hold-up problem; innovation; licensing; patent race; patent thicket;

    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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