| This dissertation examines licensing--transfers of proprietary technology among firms--in the semiconductor industry. Most of the empirical literature on licensing has focused on transfers from technologically advanced firms to firms with much older technologies, the empirical portion of this research focuses on characterizing transfers between firms of approximate technical parity. The modest theoretical literature on licensing rival firms has emphasized cost-reduction incentives; the emphasis here is on the effects of licensing on the demand for new products.;The licensing of rivals is analyzed by using a game-theoretic model. The model assumes that the downstream firms purchasing semiconductor products care about price and quality and have high switching costs for semiconductor inputs. Then, if firms can contract on price but not on quality, creating competition through licensing allows the upstream firms to make a commitment to quality that would not be credible for a monopoly supplier. Because the quality commitment increases industry demand, licensing can be a profit-maximizing strategy for the licensor even if it increases industry cost.;For the empirical work, a data base on licensing was developed from a review of trade-press descriptions of licensing agreements in the industry. The data base includes 277 agreements signed in the period 1975-1985. These data--augmented with anecdotal evidence from the trade press and other secondary literature--are used to: (1) characterize the technologies transferred, the interaction between the firms, the compensation received by licensors, and the environment in which licensing occurs; (2) examine the changing pattern of foreign licensing by U.S. firms in the altered competitive environment of the 1980s; and (3) investigate the motivations for licensing rival firms. The empirical work on licensing rival firms provides the background for the theoretical work. |
