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Inefficiencies in technology transfer: theory and empirics

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  • Allain, Marie-Laure
  • Henry, Emeric
  • Kyle, Margaret K

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.

Suggested Citation

  • 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.
  • Handle: RePEc:cpr:ceprdp:8206
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    References listed on IDEAS

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    Cited by:

    1. Marie-Laure Allain & Emeric Henry & Margaret Kyle, 2011. "Inefficiencies in the sale of ideas: theory and empirics," Working Papers hal-00639128, HAL.
    2. Marie-Laure Allain & Emeric Henry & Margaret Kyle, 2016. "Competition and the Efficiency of Markets for Technology," Management Science, INFORMS, vol. 62(4), pages 1000-1019, April.
    3. 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.

    More about this item

    Keywords

    Innovation; Licensing; Market structure;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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