Managing Licensing in a Market for Technology

Ashish Arora, Thomas Rønde, Andrea Fosfuri

    Research output: Working paperResearch

    Abstract

    Over the last decade, companies have paid greater attention to the management of their intellectual assets. We build a model that helps understand how licensing activity should be organized within large corporations. More specifically, we compare decentralization—where the business unit using the technology makes licensing decisions—to centralized licensing. The business unit has superior information about licensing opportunities but may not have the appropriate incentives because its rewards depend upon product market performance. If licensing is decentralized, the business unit forgoes valuable licensing opportunities since the rewards for licensing are (optimally) weaker than those for product market profits. This distortion is stronger when production-based incentives are more powerful, making centralization more attractive. Growth of technology markets favors centralization and drives higher licensing rates. Our model conforms to the existing evidence that reports heterogeneity across firms in both licensing propensity and organization of licensing.
    Over the last decade, companies have paid greater attention to the management of their intellectual assets. We build a model that helps understand how licensing activity should be organized within large corporations. More specifically, we compare decentralization—where the business unit using the technology makes licensing decisions—to centralized licensing. The business unit has superior information about licensing opportunities but may not have the appropriate incentives because its rewards depend upon product market performance. If licensing is decentralized, the business unit forgoes valuable licensing opportunities since the rewards for licensing are (optimally) weaker than those for product market profits. This distortion is stronger when production-based incentives are more powerful, making centralization more attractive. Growth of technology markets favors centralization and drives higher licensing rates. Our model conforms to the existing evidence that reports heterogeneity across firms in both licensing propensity and organization of licensing.
    LanguageEnglish
    Place of PublicationCambridge, MA
    PublisherNational Bureau of Economic Research (NBER)
    Number of pages29
    StatePublished - 2012
    SeriesNational Bureau of Economic Research. Working Paper Series
    Number18203
    ISSN0898-2937
    SeriesCentre for Economic Policy Research. Discussion Papers
    Number9048
    ISSN0265-8003

    Keywords

      Cite this

      Arora, A., Rønde, T., & Fosfuri, A. (2012). Managing Licensing in a Market for Technology. Cambridge, MA: National Bureau of Economic Research (NBER). National Bureau of Economic Research. Working Paper Series, No. 18203, Centre for Economic Policy Research. Discussion Papers, No. 9048
      Arora, Ashish ; Rønde, Thomas ; Fosfuri, Andrea. / Managing Licensing in a Market for Technology. Cambridge, MA : National Bureau of Economic Research (NBER), 2012. (National Bureau of Economic Research. Working Paper Series; No. 18203). (Centre for Economic Policy Research. Discussion Papers; No. 9048).
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      Arora, A, Rønde, T & Fosfuri, A 2012 'Managing Licensing in a Market for Technology' National Bureau of Economic Research (NBER), Cambridge, MA.

      Managing Licensing in a Market for Technology. / Arora, Ashish; Rønde, Thomas; Fosfuri, Andrea.

      Cambridge, MA : National Bureau of Economic Research (NBER), 2012.

      Research output: Working paperResearch

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      N2 - Over the last decade, companies have paid greater attention to the management of their intellectual assets. We build a model that helps understand how licensing activity should be organized within large corporations. More specifically, we compare decentralization—where the business unit using the technology makes licensing decisions—to centralized licensing. The business unit has superior information about licensing opportunities but may not have the appropriate incentives because its rewards depend upon product market performance. If licensing is decentralized, the business unit forgoes valuable licensing opportunities since the rewards for licensing are (optimally) weaker than those for product market profits. This distortion is stronger when production-based incentives are more powerful, making centralization more attractive. Growth of technology markets favors centralization and drives higher licensing rates. Our model conforms to the existing evidence that reports heterogeneity across firms in both licensing propensity and organization of licensing.

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      Arora A, Rønde T, Fosfuri A. Managing Licensing in a Market for Technology. Cambridge, MA: National Bureau of Economic Research (NBER). 2012.