Managing Licensing in a Market for Technology

Over the last decade, companies have increasingly focused on managing their intellectual assets. We build a model that helps understand how licensing activity should be organized within large corporations, and specifically, we compare decentralization -where the business unit using the technology makes licensing decisions -to the situation where a centralized unit is responsible. The business unit has superior information about licensing opportunities but may not have the appropriate incentives because its rewards depend upon product market performance. We find that when business units are in charge of licensing, they forgo valuable licensing opportunities. As non-pecuniary motives of managers become more salient, rewards for licensing are muted and decentralized licensing becomes less efficient. Further, growth of markets for technology favors centralization and is accompanied by an increase in production incentives. Finally, contrary to standard findings, spillovers across business units may actually favor decentralization.  Paper prepared for the CRES Foundations of Business Strategy Conference, May 14 15, 2010, held in Washington University, St. Louis. We would like to thank Karin Hoisl, Keld Laursen, Gastón Llanes, Giovanni Valentini and seminar participants at the University of Pamplona, the MOVE Workshop on “R&D and Technology Transfer”, the 2009 DRUID Summer Conference (Copenhagen) and the “Markets for Technology and Industry Dynamics” conference (Madrid) for comments and suggestions on an earlier draft. The usual disclaimer applies. Preliminary and Incomplete: Do not cite without permission