How licensing resolves holdup: evidence from a dynamic panel data model with unobserved heterogeneity

Survey of Current Business, March, 2008

Ralph Siebert (Purdue University) and Georg von Graevenitz (University of Munich). Discussant: Carol Robbins (BEA).

This paper examines whether licensing is an appropriate instrument to cut through a patent thicket. In the semiconductor industry, new technologies might be thwarted by firms holding blocking patents. In the model, high expected blocking leads to ex ante licensing, while ex post licensing arises if expected blocking is low but realized blocking is high. Also, ex ante licensing reduces firms' research and development incentives. The results suggest that licensing helps firms to resolve blocking, but it is not a cure-all: it decreases as fragmentation of property rights increases and arises mainly between large firms with similar market shares.