What Determines Firms' Choices between Ex Ante and Ex Post Licensing Agreements

We investigate whether licensing agreements are an appropriate tool for firms to resolve blocking and hold-up problems in high-tech industries. We 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 us from doing so. We estimate a bivariate probit model accounting for endogenous selection. We find that different types of licensing agreements, i.e., 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' activeness 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