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I investigate whether licensing agreements are an appropriate tool for firms to
resolve blocking and hold-up problems in high-tech industries. I use a novel and
comprehensive database on licensing agreements as well as detailed firm-level information
on revenues and patents in the semiconductor industry from 1989 to
1999. It would be interesting to evaluate the post-1999 time period, but data constraints prevent me from doing so. I estimate a bivariate probit model accounting
for endogenous selection. I find that different types of licensing agreements, that
is, ex ante and ex post licensing agreements, help firms eventually resolve realized
blocking. Firms engage in licensing before inventing a new technology (ex ante licensing) if they believe competitors hold patents that can potentially block the
commercialization of their technology. In contrast, firms engage in licensing after
inventing the technology (ex post licensing) if other firms hold patents that block
the commercialization of the technology. The estimation results also show that
firms’ activity in technology and product markets plays an important role in
explaining choices between ex ante and ex post licensing agreements. It should be
kept in mind that the semiconductor industry is high paced and the data patterns
might have changed after 1999.
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