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

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.

R&D portfolios and pharmaceutical licensing

“…Thus, R&D competition would raise the profitability of license-outs. Fosfuri (2006) and Kim and Vonotras (2006) obtained evidence that is consistent with this argument.…”

“…In a recent theoretical study, Chan et al (2007) Most previous studies focused on complementary assets as a significant determinant of licensing (Teece, 1986;Montalvo and Yafeh, 1994;Arora et al, 2001aArora et al, , 2001bShane, 2001;Kollmer and Dowling, 2004;Arora and Ceccagnoli, 2006;Fosfuri, 2006;Gambardella et al, 2007). That is, a firm with complementary assets would absorb knowledge more effectively and exploit profit opportunities more efficiently, thereby exploiting its own inventions internally rather than acquiring royalties by licensing them out.…”

“…In unreported regressions, we employed sales growth as an additional explanatory variable, since this could be a mitigating factor against the rent dissipation effect (see Fosfuri, 2006). However, we could not obtain any significant results on this variable.…”

Licensing Exchange - Insights from the Biopharmaceutical Industry

“…However, whereas previous research has focused on technology licensing as an additional source of revenue for large established firms, often in the context of (international) expansion (Fosfuri, 2006;Kotabe, Sahay, & Aulakh, 1996), there has been no systematic study of the specific challenges of dedicated technology firms that often have not integrated their technologies into products.…”

Trapped or spurred by the home region? The effects of potential social capital on involvement in foreign markets for goods and technology

“…However, firms most often produce technologies to enable in-house production of goods (Fosfuri, 2006). Commercialization of a technology through its incorporation in a product or an internal process requires investment in complementary assets, such as "parallel technologies" and/or downstream infrastructure, including systems for supporting the delivery, sale, and servicing of output (McGrath, 1997;Teece, 1986).…”