Seminar – How does rivalry affect technology exchanges between firms?

Rivals often own complementary technologies that have more value when matched together. To unleash the value of combining such technologies, firms must develop the capabilities required to harness business stealing in exchanges with rivals. We study the choice of contractual exchange mode (licensing agreements versus patent transfers) as a mechanism for mitigating business stealing. Licensing contracts are better suited to eliminate business stealing through a delineation of uses but involve higher transaction costs. Therefore, licensing should be preferred over patent transfers when the reductions in business stealing are sufficiently high to outweigh the higher transaction costs. We develop and estimate a discrete choice model that captures such trade-off. We estimate the model on a dataset that tracks interactions in the market for technology materialized through different exchange modes between publicly listed companies in the US. We find that the probability of choosing licensing (and cross-licensing) over patent transfers increases as product market overlap increases. This effect is driven by the higher benefits of eliminating more intense business stealing. We discuss implications for Intellectual Property (IP) management and more generally for the design of technology markets.

REC M4.02