Market structure and technology licensing: evidence from US manufacturing

Abstract

This paper empirically investigates how market structure, including firm- and industry-level variables, influences the incentives of companies to license out their technology. Empirical analysis is provided with the help of a panel data set of observed licensing transactions worldwide involving manufacturing companies publicly traded in the USA. The findings show that dominant firms with bigger market shares are actively involved in granting technology licenses. It was also found that company's prior involvement in licensing, the concentration and the market size of its primary industry, and the propensity to receive patents (i.e. strength of the intellectual property protection) in that industry are important determinants of the propensity to transfer technology through licensing agreements. Results suggest that transaction costs, strategic considerations, and knowledge appropriability weigh in heavily in explaining firms’ licensing behaviour.

Acknowledgements

The author thanks Professor Vonortas for his helpful suggestions and the Center for International Science and Technology Policy at the George Washington University for its research support.

Notes

 For the analysis, we read through the description of all licensing agreements to ensure that each deal was related to technology transfer or exchange of technology, licensing of new product, process technologies and designs, and to confirm the direction of technology transfer (i.e. licensor, licensee). We include few licensing deals that are also accompanied by other types of agreements such as joint ventures, joint marketing and research since this inclusion does not create any obvious biases. However, licensing deals referring to termination of licensing agreements and litigation settlements of past licensing deals are not counted.

 For further discussions, see Hausman et al. (1984), Cameron and Trivedi (1986), Winkelmann and Zimmermann (1995), Cincer (1997), and Blundell et al. (1995, 1999).