Examining the Influence of Competition Networks Structure on Firm’s Out-Licensing Strategy

Abstract

Based on a competition network perspective and the licensing literature, we argue that who competes directly with whom in downstream markets, and how competitive ties are distributed among firms are critical for firms’ upstream R&D strategies and in particular their decisions regarding technology offerings for out-licensing. We focus on industry network centralization or the concentration of competitive ties in many or a few firms. We argue that this aspect is especially relevant for potential licensor firms since it affects the pool of less-threatening exchange partners and the motivations to transfer knowledge to other firms via licensing. High levels of centralization concentrate competitive pressure on a few firms, increase the shared competitive threats within a given industry, and increase the incentives for potential licensor firms to reshape their competitive environments by selective strengthening of other firms through knowledge transfer. We argue also that this effect of industry centralization on the number of technologies offered for out-licensing will be stronger for firms with higher numbers of direct competitors, and that this interaction effect will be particularly strong if competitive threats are non-redundant. We find support for our ideas from an analysis of bio-pharmaceutical industry firms.