Previous literature finds that larger downstream markets fuel the innovation of new technologies by incentivizing firms to spend more on R&D. Our evidence shows that larger markets also increase the extent of licensing-based cooperation between upstream innovators and downstream commercializers....

We study the drug licensing behavior (acquisition of rights for developing drugs) of large pharmaceutical firms in the aftermath of large negative shocks to their pipelines, Phase 3 failures (P3Fs). We find that P3Fs lead to increased licensing within a year of the event. This result is...