the role of brand image and product characteristics on firms entry and oem decisions we investigate the optimal market entry and original equipment manufacturer oem decisions of a firm facing a market in which firms brands can be horizontally differentiated and products can be vertically differentiated the entrant might sell under its own brand and compete with an incumbent become a supplier to the incumbent or both findings reveal that when consumers perceive the firms are horizontally and vertically differentiated the entrant profits by simultaneously entering the market and establishing an oem arrangement with the incumbent in such competitive scenarios both buyer and seller increase profits by agreeing on wholesale prices that are not too low which softens both horizontal and vertical conflict between the firms findings also show that the incumbent may prefer to pay high wholesale prices to the entrant even if the incumbent had the option to source the product independently at a lower marginal cost when firms have the capability of producing each other s product lines su

credible spatial preemption it is often argued that incumbent firms may deter entry by preemptive investment in new goods we show that these conclusions are reversed when multiproduct incumbentfirms may exit in response to entry once entrants are in an industry an incumbent will often want to withdraw some goods to prevent competition with the entrant from reducing profits on other goods such a reaction makes entry more attractive to a potential entrant the equilibrium industry structure is less likely to be monopolistic as the goods are better substitutes as exit costs are low and as the competition between producers of the same good is more intense

size r d productivity and decision styles we extend the size innovation debate by incorporating decision making style as a relevant factor in the innovation process we propose that the size of firms affects the scale and quality of product innovation through the adoption of different decision making styles using the literature on cognition we conceptualize decision making style as the degree to which firms rely on analytical information for decision making during the r d process using longitudinal data of spanish firms we show that as firms increase in size they rely more extensively on analytical decision tools for the innovation activity additionally we show that the size of firms is negatively related to product innovation productivity in terms of scale and positively related to the quality and that these relationships are mediated by firms reliance on analytical decision making style we discuss theoretical and managerial implications for innovation research and practice

how not to sell nuclear weapons we consider situations where a sale affects the ensuing interaction between potential buyers these situations are modeled by assuming that an agent who does not acquire the object for sale incurs an identity dependent externality we construct a revenue maximizing auction for the seller we observe that 1 outside options and participation constraints are endogenous 2 the seller extracts surplus also from agents who do not obtain the auctioned object 3 the seller is better off by not selling at all while obtaining some payments if externalities are much larger than valuations

choosing a licensee from heterogeneous rivals we examine a rm that can license its production technology to a rival when rms are heterogeneous in production costs we show that a complete technology transfer from one rm to another always increases joint pro t under weakly concave demand when at least three rms remain in the industry a jointly pro table transfer may reduce social welfare although a jointly pro table transfer from the most e cient rm always increases welfare we also consider two auction games under complete information a standard rst price auction and a menu auction by bernheim and whinston 1986 with natural re nement of equilibria we show that the resulting licensees are ordered by degree of e ciency menu auction simple auction and joint pro t maximizing licensees in weakly descending order

international technology licensing monopoly rents transaction costs and exclusive rights as firms increasingly use licensing to exploit knowledge based assets in global technology markets appropriate structuring of these agreements has become an important line of research inquiry one area that has received less attention is the nature of rights granted in inter firm licensing relationships although it is an important clause that has implications for profit generation from licensing of proprietary assets conceptualizing licensing rights in terms of number of licenses granted and exclusivity rights given to a licensee in a foreign market this paper examines the determinants of these rights based on monopoly rents and transaction costs associated with different types of licensing contracts hypotheses are empirically tested through two studies one based on large us manufacturing firms and the other on a cross national sample of medium sized firms actively involved in international technology licensing results from both studies show a greater propensity to use non exclusive multiple licensing when the licensed technology has greater potential to produce differentiated products or when there is greater threat of substitutive technologies entering the market on the other hand innovative technologies and a higher degree of asset specific investments required of the licensee for the technology are related to the use of single exclusive licensing agreements

second sourcing as a commitment monopoly incentives to attract competition we show that a new product monopolist may benefit from delayed competition if consumers incur setup costs setup costs create a dynamic consistency problem the monopolist cannot guarantee low future prices once customers have incurred those costs we show that if customers anticipate this problem the monopolist s profits can be improved through ex ante commitment to competition in the post adoption market if setup costs are large if setup costs are small the monopolist can typically achieve the same level of profits without price commitment as with

choosing the competition and patent licensing this article examines licensing as a means of choosing the competitors which a patentee monopolist will face in the period after the patent expires the queue of entrants consists of two firms which differ in their relative strengths as competitors for example by size or level of marginal cost by structuring the industry to be composed of weak competitors the incumbent is able to prolong its dominant position in the industry after the patent expires examples are presented in which the evidence suggests that choosing the competition was an important motivation of the licensor s behavior

licensee technological potential and exclusive rights in international licensing a multilevel model granting of exclusive rights is an important consideration for firms using licensing as a mode of entry into foreign markets as exclusive contracts reduce licensors flexibility in a given market during the term of the agreement by granting exclusivity to a licensee with greater technological potential the exchange partners can increase the potential transactional value of the licensing agreement at the same time a licensee with strong technological potential will increase the threat of transactional hazards due to underinvestment and rent appropriation in this paper we develop and empirically test a model that evaluates the balancing of transactional value and transaction costs in exclusive licensing in particular we identify the conditions under which exclusive contracts are likely to be granted to foreign licensees with strong technological potential empirical results from a multilevel model based on 375 international licensing agreements of us firms in high technology industries during 1995 2008 show that licensees with a stronger technological potential are more likely to be granted exclusive rights in countries with strong intellectual property rights protection and in industries with a high rate of technological change but are less likely to be granted exclusive rights when there is a high degree of overlap between licensor and licensee products

technology licensing contracts with network effects we study the optimal technology licensing contracts with network effects and investigate the welfare implications when the product innovator is an insider that acts as a stackelberg leader we show that i the market is fully covered when relatively small network intensity matches quality differentiations that are sufficiently large ii with regard to profit maximization the optimal licensing strategy varies from one of royalty licensing to two part tariff licensing as network effects increase not including fixed fee licensing iii consumer surplus is optimal under non licensing conditions in comparison to other licensing strategies due to the covered market iv depending on network effects the preferred strategies to achieve social welfare maximization change from no licensing or fixed fee licensing to two part tariff licensing and royalty licensing is not preferred in this instance v conflict does not always or necessarily occur between the goals of enterprise profit maximization and social welfare optimization two part tariff licensing is preferred both by the licensor and by society when the network effect is large

licensing in the theory of innovation this article analyzes licensing in a noncooperative r d game we ask two questions what are the incentives for licensing a production technology and what is the impact of licensing on the pattern of innovation and the consequent evolution of industry costs and market structure the gainsfrom trading information through licensing contracts are achieved through the replacement of inefficient production techniques the ex post incentive and the elimination of inefficient research expenditures the ex ante incentive in a duopoly the availability of licensing encourages research when the firms initial production technologies are close in costs and discourages research when initial costs are asymmetric

waiting to imitate on the dynamic pricing of knowledge we study the problem of an inventor who brings to the market an innovation that can be legally imitated imitators may enter the market by imitating the innovation at a cost or by buying from the inventor the knowledge necessary to reproduce and use the invention the possibility of contracting dramatically affects the need for patent protection our results show that i imitators wait to enter the market and the inventor becomes a temporary monopolist ii the inventor sells knowledge through contracts that allow resale by the imitators and iii under certain conditions the inventor s payoff increases with the number of imitators

deterrence by market sharing a strategic incentive for licensing the potential of an incumbent firm to retain its dominant position in a market is a focal point of the modem theory of industrial organization a recent literature examines this issue for markets in which challengers threaten an incumbent s position by engaging in research for a new technology richard gilbert and david newbery 1982 show that an incumbent firm with a firstmover advantage will preempt potential entrants by inventing a new technology slightly earlier than would its rivals in a stochastic r d therefore its introduction does not alter the decision to research when the pre innovation market is characterized by an incumbent and potential entrants stephen salant 1984 shows that licensing ex post to innovation can alter the research decision as anticipation of the returns from future licensing encourages research by the entrant as a counterpoint to the salant result i find that licensing ex ante to research may discourage further research by the entrant indeed this strategic incentive for licensing may be so strong as to persuade the incumbent as well as the entrant to terminate research activity to isolate this incentive for licensing from the one discussed by salant a simple model is constructed in which licensing of future technologies is not desirable anecdotal evidence suggests that the strategic incentive does lead innovators in some markets to license their technologies examples of this information sharing are prevalent in markets where technological change is rapid in the 1940 s standard oil of new jersey discovered a process for synthetic rubber it traded patent rights on this process for a synthetic oil production process discovered by farben a german rubber company in both the synthetic oil and synthetic rubber markets rival companies were department of economics scarsborough college university of toronto toronto ontario canada m5s lal i thank jon cohen and ron saunders for discussions that inspired this paper i am also grateful to yehuda kotowitz andy mclennan jennifer reinganum ralph winter myma wooders two anonymous referees and seminar participants at the university of toronto for helpful comments on earlier drafts

abuse of dominance and licensing of intellectual property patent thickets layers of licenses a firm needs to be able to offer products that embody technologies owned by multiple firms and licensing policies have drawn increasing scrutiny from policy makers patent thickets involve complementary products which gives rise to double marginalization the so called royalty stacking problem and has the potential to retard diffusion of new technologies and reduce consumer welfare this paper examines the impact of licensing policies of one or more upstream owners essential intellectual property ip on the downstream firms that require access to that ip the terms under which downstream firms can access this ip affects entry decisions product diversity prices and welfare we consider both the case in which a single party controls the essential ip and the case in which different parties control complementary pieces of essential ip we compare the outcome of several alternative standard licensing arrangements such as flat rate access fees royalty percentages per unit fees patent pools and cross licensing arrangements with or without vertical integration we first consider the case where there is a single upstream owner of essential ip increasing the number of licenses enhances product variety which creates added value but it also intensifies downstream competition which dissipates profits we derive conditions under which the upstream ip monopoly will then want to provide an excessive or insufficient number of licenses relative to the number that maximizes consumer surplus or social welfare when there are multiple owners of essential ip royalty stacking can reduce the number of the downstream licensees but also the downstream equilibrium prices the consumers face the paper derives conditions determining whether this reduction in downstream price and variety is beneficial to consumers or society finally the paper explores the impact of alternative licensing policies with fixed license fees or royalties expressed as a percentage of the price an upstream ip owner cannot control the intensity of downstream competition in contrast volume based license fees i e per unit access fees do permit an upstream owner to control downstream competition and to replicate the outcome of complete integration the paper also shows that vertical integration can have little impact on downstream competition and licensing terms when ip owners charge fixed or volume based access fees

milestone payments or royalties contract design for r d licensing we study how innovators can optimally design licensing contracts when there is incomplete information on the licensee s valuation of the innovation and limited control over the licensee s development efforts a licensing contract typically contains an up front payment milestone payments at successful completion of a project phase and royalties on sales we use principal agent models to formulate the licensor s contracting problem and we find that under adverse selection the optimal contract structure changes with the licensee s valuation of the innovation as the licensee s valuation increases the licensor s optimal level of involvement in the development directly or through royalties should decrease only a risk averse licensor should include both up front and milestone payments moral hazard alone is not detrimental to the licensor s value but may create an additional value loss when combined with adverse selection our results inform managerial practice about the advantages and disadvantages of the different terms included in licensing contracts and recommend the optimal composition of the contract

trust and the market for technology abstract conditional on the decision to enter the market for immature technology we test for the effects that trust proxied by the context in which the negotiating parties first met has on the likelihood that these negotiations are successful using survey responses from 860 university firm and firm firm technology transactions we find that trust matters parties with high levels of trust i e know each other from a previous business are between 6 and 23 per cent more likely to conclude a transaction compared with those with low levels of trust i e cold callers we also find that patents can effectively substitute for a lack of trust and that trust is more important in upstream stages basic or applied science

strategic deterrence of sequential entry into an industry industrial entry deterrence is typically studied in a setting where an established firm or firms confront and attempt to deter a single potential competitor during the evolution of most industries however a sequence of firms enters or attempts to enter at distinct points in time consideration of issues arising from sequential entry fundamentally alters the qualitative nature of the deterrence decision undertaken by incumbent firms within a sequential setting counterintuitive behavior may be observed specifically numerous government policies designed to decrease industrial concentration penalties for anticompetitive practices subsidization of entry consent decrees restructuring industries may have the opposite effect

r d rivalry with licensing or imitation the authors study the rivalry between two firms to develop an innovation in a dynamic setting that allows for post development dissemination of the innovation such as licensing or imitation this dissemination may cause the noninnovating firm to benefit from the discovery when this occurs conventional results in the economics of r d no longer need apply they find that industry leaders will tend to develop minor innovations but will develop major innovations only if imitation is difficult copyright 1987 by american economic association

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

cheap talk coordination and entry we show how costless nonbinding nonverifiable communication cheap talk can achieve partial coordination among potential entrants into a natural monopoly industry where the payoffs are qualitatively like the battle of the sexes the analysis would apply equally in other economic situations with such payoffs for example bargaining under complete information or choosing compatibility standards while cheap talk helps achieve asymmetric coordination in a symmetric mixed strategy equilibrium it cannot achieve complete coordination if the game involves even a small amount of conflict

in search of complementary assets the determinants of alliance formation of high tech start ups abstract why do new technology based firms ntbfs cooperate starting from teece s teece d j 1986 profiting from technological innovation implications for integration collaboration licensing and public policy research policy 15 285 305 conceptual framework and taking advantage of subsequent literature on alliance formation in the resource and competence based tradition and in the social structure perspective we derive an empirical model that aims at highlighting the inducements and obstacles that these firms face in alliance formation according to firm specific characteristics and the nature of the alliance in particular a distinction is made between exploitative commercial alliances and explorative technological alliances the econometric estimates based on a large sample of italian young high tech firms that are observed from 1994 to 2003 provide strong evidence supporting two key intuitions of teece s work first the combination of specialized complementary assets appears to be a key driver of the formation of exploitative commercial alliances by ntbfs more specifically patent holding affects positively the likelihood to establish commercial alliances but this propensity is found to rapidly decrease with firm size suggesting that as long as ntbfs become larger and possess specialized commercial assets their urge for commercial alliances diminishes second following the parallelism set forth by teece between search for alliance partners and access to external financing the analysis indicates that potentially beneficial alliances may not take place because of the high transaction costs faced by smaller ntbfs in this respect our results clearly support the view that sponsor institutions as public research organizations venture and corporate venture capitalists may sensibly reduce these costs and that their role crucially depends on both the identity of the sponsor and the type of alliance

how to license intangible property we examine the optimal licensing strategy of a research lab selling to firms who are product market competitors we consider an independent lab as well as a research joint venture we show that 1 demands are interdependent and hence the standard price mechanism is not the profit maximizing licensing strategy 2 the seller s incentives to develop the innovation may be excessive 3 the seller s incentives to disseminate the innovation typically are too low 4 larger ventures are less likely to develop the innovation and more likely to restrict its dissemination in those cases where development occurs and 5 a downstream firm that is not a member of the research venture is worse off as a result of the innovation

impact of allowing sunday alcohol sales in georgia on employment and hours differential timing across counties of the removal of restrictions on sunday alcohol sales in the state of georgia is used to determine whether the change had an impact on employment and hours in the beer wine and liquor retail sales industry a triple difference ddd analysis finds significant relative increases in average weekly hours in the treated industry but no significant impact on employment we speculate regarding the forces behind the positive ddd result and conclude that the change in regulation likely lowered profits for affected liquor stores this would explain why store owners were vocal opponents to restriction removal

on the duration of technology licensing abstract we model an innovator s choice of payment scheme and duration as a joint decision in a multi period licensing game with potential future innovations and some irreversibility of technology transfer we find that it may be optimal to license the innovation for less than the full length of the patent and that royalty contracts can be more profitable than fixed fee licensing even in the absence of information asymmetry and risk aversion moreover licensing contracts based on royalty have a longer duration than fixed fee licenses and are more likely to be used in industries where innovations are frequent and intellectual property protection is weak our paper also highlights an important link between the study of technology licensing and the theory of durable goods

per unit vs ad valorem royalties under asymmetric information we study an inside patent holder s optimal licensing policy when it has imperfect information about the value of the patent to its rival the patent holder can choose any two part licensing fee with either per unit or ad valorem royalties we demonstrate that the equilibrium will be either a fully separating contract with different per unit royalty rates or a contract with a single ad valorem royalty that excludes a high cost rival fixed fees will not be used the presence of asymmetric information uniquely drives the per unit royalties that otherwise would not be adopted per unit royalties always generate higher social welfare than ad valorem royalties

optimal patents with compulsory licensing this paper examines the use of compulsory lincensing as a policy to combat the monopoly problem associated with the patent system it introduces the notion of an optimal patent one where the patent life and the licensing royalty rate are both determined optimally under certain simplifying assumptions it is shown that the optimal patent will have an indefinite life for both process and product innovations some preliminary calculations suggest that the use of compulsory licensing may lead to substantial welfare improvements even if the patent life is left unchanged at 17 years

licensing to enhance demand for new technologies this article presents a model in which licensing competitors expands demand for a new proprietary product and therefore may be a profit maximizing strategy for the licensor even when licensing increases industry cost in the model buyers care about price and quality sellers can contract on price but not on quality and a single supplier has monopoly power licensing induces quality competition and allows the supplying firms to make a quality commitment that would not be credible for a single firm as a result licensing increases industry demand and may generate an increase in industry revenue sufficient to offset any increase in industry cost some of the characteristics of the model are informed by observations in the semiconductor industry

divisionalization and entry deterrence this paper assumes that incumbent firms can create new independent divisions more cheaply than potential entrants who must incur the additional overhead costs of new entry the main theoretical result is that such divisionalization ability leads perfectly informed incumbents to preempt all rational entry into their industries in contrast existing models of entry deterrence imply that informed incumbents even those with steadily decreasing average costs will often allow rational entry our result may explain why successful large scale entry by firms with no informational advantage is extremely rare the use of divisions to preempt entry may also explain why large firms in high profit oligopolies often divisionalize allowing their divisions to compete freely despite the negative pecuniary externality that each division imposes on others