Understanding the technology market for patents: New insights from a licensing survey of Japanese firms

► We modeled licensing propensity with separating willingness to license and actual licensing outcomes. ► Technology market factors, such as strength of patent lights and degree of technology competition are found to have impacts on licensing propensity. ► In addition, factors affecting the share of patent with willingness to license but cannot, are also analyzed. ► It is found that difficulty in finding partner (market thickness factor) affects this potential licensing propensity. This paper provides an empirical analysis of the technology market for patents in Japan, by using a novel firm-level dataset that combines a Japanese Patent Office survey titled Survey of Intellectual Property Activities, the Institute of Intellectual Property patent database, and the Licensing Activity Survey conducted by the University of Tokyo. In this paper, we use a two-step model to estimate a firm's licensing propensities; the first step estimates the determinants of potential licensors (willingness to license) and the second step identifies the factors of the actual licensing out of technology (licensing propensity). We found that a significant number of patents held by firms are not licensed out, although the owners are willing to do so. Our econometric analysis reveals that a major factor behind this technology market imperfection is the potential licensors’ difficulty in finding licensing partners.