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Managing Licensing in a Market for Technology

Author

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  • Ashish Arora
  • Andrea Fosfuri
  • Thomas Roende

Abstract

Over the last decade, companies have paid greater attention to the management of their intellectual assets. We build a model that helps understand how licensing activity should be organized within large corporations. More specifically, we compare decentralization--where the business unit using the technology makes licensing decisions--to centralized licensing. The business unit has superior information about licensing opportunities but may not have the appropriate incentives because its rewards depend upon product market performance. If licensing is decentralized, the business unit forgoes valuable licensing opportunities since the rewards for licensing are (optimally) weaker than those for product market profits. This distortion is stronger when production-based incentives are more powerful, making centralization more attractive. Growth of technology markets favors centralization and drives higher licensing rates. Our model conforms to the existing evidence that reports heterogeneity across firms in both licensing propensity and organization of licensing.

Suggested Citation

  • Ashish Arora & Andrea Fosfuri & Thomas Roende, 2012. "Managing Licensing in a Market for Technology," NBER Working Papers 18203, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18203
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    Cited by:

    1. Chammassian, Raffi Gabriel & Sabatier, Valerie, 2020. "The role of costs in business model design for early-stage technology startups," Technological Forecasting and Social Change, Elsevier, vol. 157(C).
    2. Hong, Xianpei & Govindan, Kannan & Xu, Lei & Du, Peng, 2017. "Quantity and collection decisions in a closed-loop supply chain with technology licensing," European Journal of Operational Research, Elsevier, vol. 256(3), pages 820-829.
    3. Symeonidou, Noni & Bruneel, Johan & Autio, Erkko, 2017. "Commercialization strategy and internationalization outcomes in technology-based new ventures," Journal of Business Venturing, Elsevier, vol. 32(3), pages 302-317.
    4. Cabaleiro, Goretti, 2019. "Sources of appropriation capacity in licensing agreements," Technovation, Elsevier, vol. 86, pages 48-61.
    5. Aghasi, Keivan & Colombo, Massimo G. & Rossi-Lamastra, Cristina, 2017. "Acquisitions of small high-tech firms as a mechanism for external knowledge sourcing: The integration-autonomy dilemma," Technological Forecasting and Social Change, Elsevier, vol. 120(C), pages 334-346.
    6. Jean-Etienne de Bettignies & Bulat Gainullin & Hua Fang Liu & David T. Robinson, 2018. "The Effects of Downstream Competition on Upstream Innovation and Licensing," NBER Working Papers 25166, National Bureau of Economic Research, Inc.
    7. Lee, Jong-Seon & Park, Ji-Hoon & Bae, Zong-Tae, 2017. "The effects of licensing-in on innovative performance in different technological regimes," Research Policy, Elsevier, vol. 46(2), pages 485-496.
    8. Banerjee, Tannista & Siebert, Ralph, 2017. "Dynamic impact of uncertainty on R&D cooperation formation and research performance: Evidence from the bio-pharmaceutical industry," Research Policy, Elsevier, vol. 46(7), pages 1255-1271.
    9. Dushnitsky, Gary & Klueter, Thomas, 2017. "Which industries are served by online marketplaces for technology?," Research Policy, Elsevier, vol. 46(3), pages 651-666.
    10. Chen, Jingxian & Liang, Liang & Yao, Dong-qing, 2017. "An analysis of intellectual property licensing strategy under duopoly competition: Component or product-based?," International Journal of Production Economics, Elsevier, vol. 193(C), pages 502-513.
    11. Kwon, Seokbeom, 2020. "How does patent transfer affect innovation of firms?," Technological Forecasting and Social Change, Elsevier, vol. 154(C).
    12. 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.
    13. Zhang, Qiao & Zhang, Jianxiong & Zaccour, Georges & Tang, Wansheng, 2018. "Strategic technology licensing in a supply chain," European Journal of Operational Research, Elsevier, vol. 267(1), pages 162-175.
    14. Huang, Yanting & Wang, Zongjun, 2017. "Information sharing in a closed-loop supply chain with technology licensing," International Journal of Production Economics, Elsevier, vol. 191(C), pages 113-127.
    15. Jinshi Cheng & Bengang Gong & Bangyi Li, 2018. "Cooperation strategy of technology licensing based on evolutionary game," Annals of Operations Research, Springer, vol. 268(1), pages 387-404, September.
    16. Naubahar Sharif, 2018. "To License or Sell: A Study on the Patent Transaction Modes in China," HKUST IEMS Working Paper Series 2018-51, HKUST Institute for Emerging Market Studies, revised Jan 2018.
    17. Cabaleiro-Cerviño, Goretti & Burcharth, Ana, 2020. "Licensing agreements as signals of innovation: When do they impact market value?," Technovation, Elsevier, vol. 98(C).

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    More about this item

    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
    • 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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