Get Pennies from many or get a Dollar from one? Multiple licensing in markets for technology

This paper extends the licensing decision model in prior studies and proposes a two-stage model that explains the effects of product market competition and patent protection on the number of licenses made between technology suppliers and buyers. Using novel survey data on Japanese firms' licensing activities between 2008 and 2010, our empirical investigation finds that more competitors in licensors' product markets lead to more licenses whereas more competitors in licensees' product markets lead to fewer licenses. Further, empirical results also show that patent protection elicits opposite effects in the two stages such that patented technologies are more likely to be licensed but to fewer licensees, compared with non-patented technologies. Finally, the effects of product market competition and patent appear to interact in their joint influence on the number of licenses. • A two-stage model explains the effects of competition and patent on number of licenses. • Competitions in upstream and downstream markets affect number of licenses differently. • Patent protection has opposite effects in the two stages of the licensing decision. • Patented technologies are more likely to be licensed but to fewer licensees.