Ecosystem Strategy in Technology Licensing

Abstract

The last few decades have witnessed a significant increase in licensing. Firms usually license in or out patents for technology acquisition or exploitation and other strategic purposes. Although literature has discussed the optimal licensing strategy for patent holders, the value of the technology is not completely exploited due to a few reasons. One of the challenges results from the presence of innovation ecosystem, where complementors have great impact on both licensors’ and licensees’ product performance. In this paper we focus on licensors’ ecosystem strategy, i.e. engaging complementors, in their licensing scenarios. By mathematical proof in an extended model based on the literature, we find that involving complementors is profitable for licensors, but involving too many would cause decrease in the profitability. We also conclude that the relative position of the licensor in the licensing competition (i.e. relative numbers of licensees) is the key to determine its ecosystem strategy. When the licensor licenses less aggressively than its competitors and has small transaction cost with complementors, involving complementors is a supportive strategy to its existing licensing strategy. However when the licensor is licensing more than others, engaging complementors would be unfavourable.