Licensing Exchange - Insights from the Biopharmaceutical Industry

Abstract

Licensing out technologies is a main source of revenue for dedicated technology firms. While licensing exchange has received very little attention in prior marketing literature, it is both economically important and poses particular challenges. Characteristics of technology markets such as complexity, pace of change, and uncertainty, create an information gap between licensees and licensors. Bridging the information gap may help licensors with obtaining new licensing agreements. The main premise of this study is that differences between dedicated technology firms in terms of licensing success can be explained by looking at information sources that help bridge this information gap. We propose three such information sources: a dedicated technology firm's (1) voluntary disclosure of information, (2) position in the industry's licensing network as an informational signal of status and quality, and (3) position in the industry's social network as a driver of information dissemination. An empirical test in the biopharmaceutical industry provides evidence of both the benefits and the dark sides of these three information sources: (1) voluntarily disclosing information increases licensing success, but this effect turns negative as firms disclose too much information; (2) a central position in the licensing exchange network also exerts an inverted U effect on licensing success; (3) a central position in the social network (of board interlocks) stimulates licensing success but exerts an additional negative effect on profitability. The findings contribute to imperfect information theory, network status theory, and social embeddedness theory; they also have consequences for marketing's primary subject matter, exchange; and they have implications for managing dedicated technology firms.