| This study theoretically and empirically addresses behavioral aspects of technology licensing negotiations: under information asymmetry, which is caused by the technology seller's paradox (Arrow, 1962), how can the parties arrange technology licensing? In particular, raised are the following three operational questions. (a) How do the parties negotiate over license compensation without disclosing technology? (b) How do they negotiate over the (package) composition of transfer service terms? (c) What is the functional interaction between compensation arrangement and package composition, which are the two most salient concerns in negotiations of technology licensing?;Within a Bayesian game theory framework, which is applied to the economics of information, a three stage bargaining model of technology licensing with one-side incomplete information is presented. In the model, proposed are: (a) in the face of buyer uncertainty, transfer service terms work as a signaling device during negotiations; (b) incentive and ability of the parties to make transactions despite the informational problems become one criterion for composing transfer service terms; (c) through informational interactions of the parties, license compensation and package composition are jointly determined by negotiating conditions as well as by technology characteristics. These propositions substantiate the Pareto Optimal Deal view (Caves, et al; 1983) on licensing negotiations: transactions cost concerns can be extended to explaining operations of technology licensing.;In the empirical part, this study investigates systematic links among buyer uncertainty, compensation arrangement and package composition. Using licensing contract data which are collected from the Korean pharmaceutical industry through mail survey, this study analyzes: what are determinants of transfer service terms? Through canonical correlation analysis, multivariate analysis of variance, logit regression and multiple regression, this study finds moderate support for the signaling role of transfer services during licensing negotiations. In particular, technology appropriability including patent right and trademark turns out to be the most salient factor in decisions of transfer service terms.;Based on these results, this study casts policy suggestions for US technology sellers, as well as for foreign governments intervening in licensing operations. |
