Licensing early-versus late-stage technologies: The licensee perspective

Abstract

Inward licensing of technology is an important route for firms to secure technological advances. With varying uncertainties and licensing opportunities along the innovation process, firms face challenges in deciding whether to license technologies during their early stages of development when they present opportunities as well as high uncertainty, or to wait until they have developed further towards commercialization, when they have lower technological uncertainty and are left with few opportunities. Building on studies of interfirm networks, we investigate how a firm's network structure and reputation affect such decisions. Our empirical analysis of licensing agreements in the biotechnology and pharmaceutical industries shows that firms tend to initiate licensing agreements during the early stage of technology development when their network structure is rich in structural holes. This tendency is higher when they are of good reputation. This research contributes to our understanding of how licensing agreements occur along the innovation process.