Understanding Licensing Behavior: A Rent Dissipation Lens on NIH, Product Market Competition and Sunk Costs

The potential for rent dissipation has been argued to be the main cause of firms? licensing out behavior being stifled. However, this aspect has been scarcely studied empirically. We draw on rent dissipation arguments, and hypothesize that firms suffering from the not-invented-here (NIH) syndrome, firms in competitive product markets, and firms that have incurred substantial sunk cost are associated with lower rates of technology out-licensing. We also posit that sunk costs negatively moderate the relationship between competition in the licensor?s product market, and licensing rate. We test our hypotheses using a sample of 151 licensors involved in licensing contracts in the U.S. pharmaceutical industry during the period 1984-2004. We find broad support for our theoretical arguments.