Experiential Learning, Bargaining Power, and Exclusivity in Technology Licensing

Abstract

Licensing has become the central form of interfirm technology transfer and commercialization in the market for inventions. However, despite the large representation and growth of this business model, the resolution of key contractual provisions is still regarded as idiosyncratic, and little is known about how experience with prior relationships or bargaining power position affects contract outcomes. In an attempt to further understand how these transactions unfold, we present and test a theoretical framework disentangling experience benefits and transaction costs associated with licensors’ prior involvement in out- versus in-licensing deals and how they affect the important, yet contentious, contractual provision of nonexclusivity. Drawing on transaction cost, experiential learning, and bargaining power theories, we develop new insights explaining when licensors are likely to realize nonexclusive contracts as a function of their prior licensing deals, and when bargaining power moderates the relationships between prior deals and nonexclusivity. Leveraging a 27-year sample of bioscience licensing transactions, this study reveals the dynamic tension between the benefits and transaction costs arising from prior interfirm collaborations, and how a firm’s history of collaborations, alongside its bargaining power position, influences contractual outcomes.