Managing Licensing in a Market for Technology

32 Pages Posted: 28 Sep 2012

See all articles by Ashish Arora

Ashish Arora

Duke University - Fuqua School of Business; National Bureau of Economics Research; Duke Innovation & Entrepreneurship Initiative

Andrea Fosfuri

Universidad Carlos III de Madrid - Department of Business Administration

Thomas Rønde

University of Copenhagen - Department of Economics; Center for Economic and Business Research (CEBR); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2012

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.

Keywords: Licensing, Markets for technology, Organization design

JEL Classification: L22, L24

Suggested Citation

Arora, Ashish and Fosfuri, Andrea and Rønde, Thomas, Managing Licensing in a Market for Technology (July 2012). CEPR Discussion Paper No. DP9048. Available at SSRN: https://ssrn.com/abstract=2153499

Ashish Arora

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

National Bureau of Economics Research

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Andrea Fosfuri

Universidad Carlos III de Madrid - Department of Business Administration ( email )

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

Thomas Rønde

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark
+64 9 532 3014 (Phone)
+64 9 532 3000 (Fax)

Center for Economic and Business Research (CEBR) ( email )

Porcelaenshaven, Bldg 65
DK-2000 Frederiksberg
Denmark

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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