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- Title
Bargaining power in the market for intellectual property: Evidence from licensing contract terms.
- Authors
Kankanhalli, Gaurav; Kwan, Alan
- Abstract
We study a novel database of intellectual property (IP) licensing agreements sourced from filings made by publicly listed corporations, a large fraction of which firms (initially) disclose with redacted terms. In contrast to the benchmark that IP quality alone determines the pricing of IP, we argue that bargaining power between licensing counterparties plays a critical role in explaining several patterns in observed royalty rates. Licensors with differentiated technology and high market power charge higher royalty rates, while larger‐than‐rival licensees pay lower royalty rates. Licensors command premium royalty rates for contract exclusivity, especially in competitive markets. Finally, we employ this framework and setting to understand the pricing implications of nondisclosure: licensors redact payment terms when they transact at lower royalty rates, consistent with preserving bargaining power for future negotiations. Our findings offer a new explanation for innovator secrecy and have several practical takeaways for transfer pricing and patent litigation.
- Subjects
BARGAINING power; INTELLECTUAL property; ELECTRICITY markets; REAL estate sales; MARKET power
- Publication
Journal of Empirical Legal Studies, 2024, Vol 21, Issue 1, p109
- ISSN
1740-1453
- Publication type
Article
- DOI
10.1111/jels.12374