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A Dynamic Analysis of Licensing: The ‘‘Boomerang'’ Effect and Grant‐Back Clauses*
Author(s) -
Choi Jay Pil
Publication year - 2002
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.t01-1-00036
Subject(s) - licensee , competition (biology) , rivalry , casual , economics , argument (complex analysis) , distortion (music) , ex ante , law and economics , incentive , industrial organization , microeconomics , law , license , political science , computer science , ecology , amplifier , biochemistry , chemistry , computer network , bandwidth (computing) , biology , macroeconomics
This article develops an incomplete contract model of the licensing relationship to analyze the dynamic effects of licensing on R&D competition in the innovation market and to examine the rationale for often observed ‘‘grant‐back'’ clauses. Of particular concern are how the consideration of future competition distorts the licensing relationship and how the grant‐back clause can mitigate this distortion. I also evaluate the validity of the casual antitrust argument that grant‐back clauses may adversely affect competition because they reduce the licensee's incentive to engage in R&D and thereby limit rivalry in innovation markets.