Licensing Contracts: Control Rights, Options, and Timing

Pascale Crama (), Bert De Reyck () and Niyazi Taneri ()
Additional contact information
Pascale Crama: Department of Operations Management, Singapore Management University, Singapore 178899
Bert De Reyck: UCL School of Management, University College London, London WC1E 6BT, United Kingdom
Niyazi Taneri: Engineering Systems and Design, Singapore University of Technology and Design, Singapore 487372

Management Science, 2017, vol. 63, issue 4, 1131-1149

Abstract: Research and development (R&D) collaborations, common in high-tech industries, are challenging to manage because of technical and market risks as well as incentive problems. We investigate how control rights, options, payment terms, and timing allow the innovator to capture maximum value from its R&D collaborations with a marketer. Our study reveals a counterintuitive result; the innovator may, under certain conditions, prefer to grant launch control rights or buyout options to the marketer despite the fact that both terms restrict its downstream actions. We demonstrate that a menu of contracts is not necessary to address the adverse selection problem because the menu can be replicated by a single option contract. We show that timing, through renegotiation or delayed contracting, as well as the careful allocation of control rights and options can have a significant influence on the value of collaborative R&D. We provide recommendations on the optimal contract structure and timing based on two project characteristics, novelty of the R&D process and market-potential variability.

Keywords: research and development; innovation; contract design; moral hazard (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://doi.org/10.1287/mnsc.2015.2386 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:63:y:2017:i:4:p:1131-1149

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().