Inefficiencies in Technology Transfer: Theory and Empirics

56 Pages Posted: 31 Jan 2011

See all articles by Marie-Laure Allain

Marie-Laure Allain

Ecole Polytechnique, Paris - Department of Economic Sciences

Emeric Henry

London Business School

Margaret Kyle

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: January 2011

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.

Keywords: Innovation, Licensing, Market structure

JEL Classification: L13, L24, L65

Suggested Citation

Allain, Marie-Laure and Henry, Emeric and Kyle, Margaret, Inefficiencies in Technology Transfer: Theory and Empirics (January 2011). CEPR Discussion Paper No. DP8206, Available at SSRN: https://ssrn.com/abstract=1749847

Marie-Laure Allain (Contact Author)

Ecole Polytechnique, Paris - Department of Economic Sciences ( email )

Palaiseau, 91128
France

Emeric Henry

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Margaret Kyle

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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