Restrictive licensing practices in international markets: A transaction cost perspective

The purpose of this dissertation is to explore the reasons for restrictive licensing practices in international markets. We propose the concept of restrictiveness as an underlying dimension for licensing restrictions and present a model of restrictiveness in licensing relationships based on transaction cost analysis. The model includes six variables extracted from our theoretical underpinning: specificity of complementary assets, behavioral uncertainty, end product market uncertainty, application uncertainty, tacitness and technological uncertainty. Two variables external to the transaction cost reasoning, licensor's market power and age of technology, are added on the basis of the past literature. Also included to control for possible moderating effects are country variables that represent locational characteristics of technology licensing in international markets.;Relationships between the restrictiveness dimension and its antecedent conditions are empirically tested using a sample of licensing contracts involving Korean industrial firms as licensees. The empirical results show that licensing contracts become restrictive as it is more difficult to articulate the technology in question, to evaluate licensee's performance or to predict potential applications of the technology. Tacitness of technology is also found to positively influence restrictiveness through behavioral uncertainty. Licensing contracts become less restrictive when the technology is changing fast. A counter-intuitive expectation is also supported in that technological uncertainty has a positive effect on licensing restrictiveness through application uncertainty. Degrees of specificity of complementary assets and end product market uncertainty are not associated with the degree of restrictiveness. No significant relationships have been found between the restrictiveness dimension and the variables outside the transaction cost framework.;Overall, the empirical results provide supporting evidence for our main thesis that restrictiveness in licensing relationships is primarily affected by transaction cost considerations. These results suggest that restrictive clauses are included to economize on the costs of executing technology transactions between nominally independent firms.