Strategy and Cost in Technology Licensing

The strategic behavior of technology owners creates important determinants of inter-firm technology licensing within a single industry when products are differentiated and knowledge is imperfectly appropriable. Transaction cost considerations factor in heavily when the net is extended to cross-industry licensing. The probability that two companies will engage in a licensing agreement, then, mainly depends on the relationship between them and on their characteristics, including the closeness of their market and technological profiles, familiarity through prior interaction, licensing experience, and the strength of intellectual property protection in the primary industry of the licensor. JEL Classification: L2, O3 * Department of Economics, The George Washington University, 2201 G Street, N.W., Washington, D.C. 20052, USA. Tel: (202) 994-6150 Fax: (202) 994-6147 E-mail: [email protected] ** Corresponding author: Department of Economics, The George Washington University, 2201 G Street, N.W., Washington, D.C. 20052, USA. Tel: (202) 994-6458 Fax: (202) 994-1639 E-mail:[email protected] ♣ This work has been supported by the Organization for Economic Cooperation and Development (contract JA00016280) and the US National Science Foundation (grant # SRS-0097948). We thank Professors Ashish Arora, Wesley Cohen, Wally Mullin, David Ribar and Chris Snyder and participants at the OECD Conference “IPR, Innovation and Economic Performance” (Paris, August 2003) for very useful comments on earlier versions of the paper. All remaining mistakes are our responsibility.