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Screening and signalling for technology licensing: a comparison
Author(s) -
Antelo Manel
Publication year - 2012
Publication title -
randd management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.253
H-Index - 102
eISSN - 1467-9310
pISSN - 0033-6807
DOI - 10.1111/j.1467-9310.2012.00684.x
Subject(s) - licensee , variety (cybernetics) , business , opportunism , context (archaeology) , license , adverse selection , private information retrieval , production (economics) , signalling , welfare , information asymmetry , industrial organization , economics , marketing , actuarial science , microeconomics , computer science , finance , computer security , market economy , paleontology , artificial intelligence , biology , operating system
This article studies, in an adverse selection set‐up, how a patentee licenses a new technology in a two‐period context where the licensee has private information on its marginal cost of production. Two different ways of licensing are considered: the patentee offers, in the first period, either a menu of contracts that screens the different types of licensee or a single contract that obliges the licensee to signal its true type. Of these two contracts, the better for the patentee depends on the probability of the innovation gives rise to a low marginal cost and the difference between the high and low cost. Findings explain, to some degree, the variety of licensing contracts observed in practice (some including only a fixed fee, and others including both a royalty and a fixed fee). This variety may be rationalised by the use of different devices (signalling or screening) aimed at alleviating the effects of opportunism. A welfare comparison of the two means for extracting hidden information from the licensee is also made.