The Licensing Dilemma: Understanding the Determinants of the Rate of Technology Licensing

34 Pages Posted: 18 Jan 2005

See all articles by Andrea Fosfuri

Andrea Fosfuri

Universidad Carlos III de Madrid - Department of Business Administration

Date Written: April 2006

Abstract

The licensing of technology entails a tradeoff: Licensing payments net of transaction costs (revenue effect) must be balanced against the lower price-cost margin and/or reduced market share implied by increased competition (profit dissipation effect) from the licensee. We argue that the presence of multiple technology holders, which compete in the market for technology, changes such a tradeoff and triggers more aggressive licensing behavior. To test our theory, we analyze technology licensing by large chemical firms during the period 1986-96 for 107 chemical products. We find that the rate of technology licensing displays an inverted U-shaped relationship with the number of potential technology suppliers and is negatively related to the licensor's market share and to the degree of technology-specific product differentiation.

Keywords: Licensing, revenue effect, profit dissipation effect, chemical industry

Suggested Citation

Fosfuri, Andrea, The Licensing Dilemma: Understanding the Determinants of the Rate of Technology Licensing (April 2006). Available at SSRN: https://ssrn.com/abstract=650108 or http://dx.doi.org/10.2139/ssrn.650108

Andrea Fosfuri (Contact Author)

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

Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain

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