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Competition and the Efficiency of Markets for Technology

Author

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  • Marie-Laure Allain

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris)

  • Emeric Henry

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Margaret Kyle

    (CERNA i3 - Centre d'économie industrielle i3 - Mines Paris - PSL (École nationale supérieure des mines de Paris) - PSL - Université Paris Sciences et Lettres - I3 - Institut interdisciplinaire de l’innovation - CNRS - Centre National de la Recherche Scientifique)

Abstract

The sale of ideas through licensing facilitates the division of labor between the separate activities of research and development. This vertical specialization can improve the overall efficiency of the innovative process. However, these gains depend on the timing of the sale: the buyer of an innovative project should assume development at the stage at which he has an efficiency advantage. Using data from the pharmaceutical industry, we show that competition between potential buyers is related to the timing of licensing. Furthermore, the effect differs by the type of competitor. We then describe a class of models that yields predictions consistent with these empirical patterns. Our key insight is that increased competition may increase licensing delays and hence inefficiency.

Suggested Citation

  • Marie-Laure Allain & Emeric Henry & Margaret Kyle, 2016. "Competition and the Efficiency of Markets for Technology," Sciences Po Economics Publications (main) hal-03542108, HAL.
    • Handle: RePEc:hal:spmain:hal-03542108
    DOI: 10.1287/mnsc.2015.2191
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    Cited by:

    1. Rønde, Thomas & Arora, Ashish & Fosfuri, Andrea, 2018. "Waiting for the payday? The market for startups and the timing of entrepreneurial exit," CEPR Discussion Papers 12724, C.E.P.R. Discussion Papers.
    2. Wang, Xue & Fan, Li-Wei & Zhang, Hongyan & Zhou, Peng, 2025. "Hydrogen fuel cell technology development in China: Technology evolution, city-cluster network and industry chain distribution," Energy, Elsevier, vol. 322(C).
    3. Billette de Villemeur, Etienne & Versaevel, Bruno, 2019. "One lab, two firms, many possibilities: On R&D outsourcing in the biopharmaceutical industry," Journal of Health Economics, Elsevier, vol. 65(C), pages 260-283.
    4. Choné, Philippe & Linnemer, Laurent, 2020. "Linear demand systems for differentiated goods: Overview and user’s guide," International Journal of Industrial Organization, Elsevier, vol. 73(C).
    5. 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.
    6. Jeon, Haejun & Nishihara, Michi, 2018. "Optimal patent policy in the presence of vertical separation," European Journal of Operational Research, Elsevier, vol. 270(2), pages 682-697.
    7. Benoit Voudon, 2019. "Technology Adoption under Asymmetric Market Structure," Trinity Economics Papers tep0819, Trinity College Dublin, Department of Economics.
    8. Norbäck, Pehr-Johan & Persson, Lars & Svensson, Roger, 2017. "Verifying High Quality: Entry for Sale," Working Paper Series 1186, Research Institute of Industrial Economics.
    9. Peters, Bettina & Marks, Hannes & Trunschke, Markus & Grimpe, Christoph & Sofka, Wolfgang & Czarnitzki, Dirk, 2023. "Schwerpunktstudie Technologiemärkte," Studien zum deutschen Innovationssystem 9-2023, Expertenkommission Forschung und Innovation (EFI) - Commission of Experts for Research and Innovation, Berlin.
    10. Margaret K. Kyle, 2020. "The Alignment of Innovation Policy and Social Welfare: Evidence from Pharmaceuticals," Innovation Policy and the Economy, University of Chicago Press, vol. 20(1), pages 95-123.
    11. Philippe Choné & Laurent Linnemer, 2019. "The quasilinear quadratic utility model: an overview," CESifo Working Paper Series 7640, CESifo.
    12. Ashish Arora & Andrea Fosfuri & Thomas Rønde, 2021. "Waiting for the Payday? The Market for Startups and the Timing of Entrepreneurial Exit," Management Science, INFORMS, vol. 67(3), pages 1453-1467, March.
    13. Li, Qing & Zhang, Huaige & Hong, Xianpei, 2020. "Knowledge structure of technology licensing based on co-keywords network: A review and future directions," International Review of Economics & Finance, Elsevier, vol. 66(C), pages 154-165.
    14. Deepak Hegde & Hong Luo, 2018. "Patent Publication and the Market for Ideas," Management Science, INFORMS, vol. 64(2), pages 652-672, February.
    15. Louis-Sidois, Charles, 2024. "Buying winners," Games and Economic Behavior, Elsevier, vol. 143(C), pages 1-11.
    16. Jean-Etienne de Bettignies & Hua Fang Liu & David T. Robinson & Bulat Gainullin, 2023. "Competition and Innovation in Markets for Technology," Management Science, INFORMS, vol. 69(8), pages 4753-4773, August.
    17. Yan Anthea Zhang & Zhuo Emma Chen & Yuandi Wang, 2021. "Which patents to use as loan collaterals? The role of newness of patents' external technology linkage," Strategic Management Journal, Wiley Blackwell, vol. 42(10), pages 1822-1849, October.
    18. Arora, Ashish & Fosfuri, Andrea & Rønde, Thomas, 2024. "The missing middle: Value capture in the market for startups," Research Policy, Elsevier, vol. 53(3).
    19. Kim, Young-Choon & Kotha, Reddi & Rhee, Mooweon, 2024. "Do firms with technological capabilities rush in? Evidence from the timing of licensing of Stanford inventions," Journal of Business Research, Elsevier, vol. 178(C).

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