Technology royalty as a strategic impetus in knowledge exchange

Abstract

Joint ventures and technology licensing can involve contracting and royalty-based payments. Payment behavior is not a simple consequence; it may be a strategic impetus to exchange knowledge. Extending the transaction cost economics, this study examines the effects of non-contractible variables on the strategic preference for payment modes. We test hypotheses using information from a survey of 104 Taiwanese firms and partial least square (PLS) analysis to examine the payment behavior in a technology licensing contract. Considering knowledge tacitness, the licensed technology incurring high transraction costs reduces the source intention to build long-term relationship with the recipient, and thus a fee-based payment is preferred. When shifting the focus of technology or knowledge per se to the heterogeneity of technology recipients, relationship exchange embedded in recipient dependence and learning potential becomes critical in a technology licensing contract, and increase the likelihood of royalty-based payment.