HEC Research Papers Series,
HEC Paris

Abstract: How do exclusivity control rights affect the production of IP between contracting firms? When a distribution firm contracts with a development firm to create IP, the distributor often receives exclusivity control rights that restrict the IP’s licensing to its competitors. The effect of such control rights on the production of IP is in general theoretically ambiguous as it may both increase the distributor’s incentives while lowering the developer’s incentives. In this paper, I argue that when the distributor contracts with several development firms simultaneously, the production of IP hinges on the distributor’s rather than the developer’s incentives. I hypothesize that restricting developers from holding exclusivity control rights should both reduce the amount and alter the type of IP created. To provide empirical support for my hypotheses, I take advantage of an FCC rule change that prevented the US television networks from holding exclusivity control rights over the programming they contracted for production while leaving non-US networks unaffected. I find that restricting network control rights made existing programs more likely to be canceled by the networks, reduced the number of new programs developed, and changed the genre of new programs developed. These results provide empirical evidence of how the allocation of exclusivity control rights between contracting firms affects the amount and type of IP produced for potential licensing.

Keywords: IP; distribution firm

JEL-codes: D22; D23; K12; L22; L24; L82; O31; O32

45 pages, December 6, 2019

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