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The licensing dilemma: understanding the determinants of the rate of licensing

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  • Fosfuri, Andrea

Abstract

Licensing entails a tradeoff: licensing payments net of transaction costs (revenue effect) have to be balanced against the lower price-cost margin and/or reduced market share that the increased competition (profit dissipation effect) from the licensee implies. We argue that the presence of multiple technology holders, who compete in the market for technology, changes such tradeoff and triggers a more aggressive licensing behavior. To test our theory we analyze technology licensing by large chemical firms during the period 1986-96. We find that the rate of licensing is initially increasing and then decreasing in the number of potential technology suppliers, negatively related to the licensor's market share and to the degree of product differentiation.

Suggested Citation

  • Fosfuri, Andrea, 2004. "The licensing dilemma: understanding the determinants of the rate of licensing," DEE - Working Papers. Business Economics. WB wb041507, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
  • Handle: RePEc:cte:wbrepe:wb041507
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    4. Arora, Ashish & Fosfuri, Andrea, 2003. "Licensing the market for technology," Journal of Economic Behavior & Organization, Elsevier, vol. 52(2), pages 277-295, October.
    5. Wesley David Sine & Scott Shane & Dante Di Gregorio, 2003. "The Halo Effect and Technology Licensing: The Influence of Institutional Prestige on the Licensing of University Inventions," Management Science, INFORMS, vol. 49(4), pages 478-496, April.
    6. Arora, Ashish, 1997. "Patents, licensing, and market structure in the chemical industry," Research Policy, Elsevier, vol. 26(4-5), pages 391-403, December.
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    8. 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, January.
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    Cited by:

    1. Nagaoka, Sadao & Kwon, Hyeog Ug, 2006. "The incidence of cross-licensing: A theory and new evidence on the firm and contract level determinants," Research Policy, Elsevier, vol. 35(9), pages 1347-1361, November.
    2. Gambardella, Alfonso & Giuri, Paola & Luzzi, Alessandra, 2007. "The market for patents in Europe," Research Policy, Elsevier, vol. 36(8), pages 1163-1183, October.
    3. 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.

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