Entrepreneurship

Licensing Decision: A Rent Dissipation Lens Applied to Product Market Competition, Openness to External Knowledge and Exogenous Sunk Costs

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The fear of rent dissipation has been proposed as the main reason firms are hesitant to enter markets for technology. In this paper we investigate conditions under which firms are particularly reluctant to out-license their technologies due to shifts in the relative magnitudes between potential rent dissipation and revenue effects. Specifically, we offer theoretical arguments and empirical evidence suggesting that firms operating under higher product market competition are more reluctant to license their technologies. The firms' openness to external knowledge, while having a direct positive association with greater licensing rates, also partially mitigates the negative effect of increasing product market competition. Exogenous sunk costs, however, increase the firms' reluctance to out-license and also further fuel the negative association between out-licensing and product market competition. The empirical investigation builds on a sample of 227 licensors involved in licensing contracts in the U.S. pharmaceutical industry from 1986 to 2005. The study has substantial implications for management, research and policy makers.
Bibliographic citation: Moreira, Solon; Cabaleiro, Goretti; Reichstein, Toke, "Licensing Decision: A Rent Dissipation Lens Applied to Product Market Competition, Openness to External Knowledge and Exogenous Sunk Costs", Industrial and Corporate Change, Vol. 28, No. 4, 2019, pp 773 - 792
Date: 08/2019
Author(s): Moreira, Solon; Cabaleiro, Goretti; Reichstein, Toke
Document type: Article in Journal (refereed)
Languages: English