Journal
STRATEGIC MANAGEMENT JOURNAL
Volume 27, Issue 12, Pages 1141-1158Publisher
WILEY
DOI: 10.1002/smj.562
Keywords
licensing; revenue effect; profit dissipation effect; chemical industry
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The licensing of technology entails a trade-off: 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 trade-off 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. Copyright (c) 2006 John Wiley & Sons, Ltd.
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