The Impact of Firm and Industry Characteristics on Technology Licensing‪.‬

Introduction It has been argued that scientific and technological knowledge is subject to significant complications that inhibit markets from attaining socially optimum outcomes. For instance, anecdotal evidence shows that large companies in the United States, Western Europe, and Japan ignore much of their patented technologies, which could be licensed or profitably sold (British Technology Group 1998). The inefficiency of the market for technology is caused by a number of impediments. Arrow (1962) argues that preventing knowledge from being appropriated is the major obstacle to the efficient market for technology. Once an idea is disclosed to a potential buyer, it is possible for that buyer to use the information without paying for it. As a result, a potential licensor is reluctant to disclose the core of a technology, and this leads to a typical market failure. Studies on contracts and transaction costs have elaborated on the causes and effects of moral hazard and asymmetric information in exchanging knowledge through arm's length transactions. These problems make the underlying contracts incomplete (Caves, 1996; Hart, 1995; Menard, 1996; Salanie, 2002). On the other hand, evolutionary economics (Nelson and Winter, 1982) and management theory have given a lot of attention to the organizational aspects of the innovation process, showing that often the requisite capabilities and routines are difficult to exchange through the market (Teece, 1977). Cognitive limitations in the transfer of technology to another context require extensive adaptations and costs (Arora and Gambardella 1994).