Trichy V. Krishnan
Head of Marketing Dept., NUS School of Business, National University of Singapore, Singapore

Murali Sathanam
Attorney, Lodestar Systems, Houston, TX, U.S.A.

Many studies have examined the possible reasons for two or more parties having strengths in disparate but complementary disciplines to come together to form a cooperative exchange relationships or open-ended sharing relationships. These studies have concluded that a reasonable hypothesis would be the desire of one party to garner the specialized skills of the other to derive increased return which he would not otherwise have achieved. Licensing is perhaps one of the most prevalent cooperative mechanisms practiced in the market place. Licensing involves a product belonging to a person or a corporation being produced, marketed, or maintained by another person or corporation. Although this coming together of different entities in cooperative ventures is undertaken to increase both the chances of success and the expected joint return, there always exist incentives for these entities to direct efforts to maximize their individual returns while undermining the joint returns. Since, both parties are aware that unless suitable harnessing and incentive mechanisms are in place, the other party would rather seek maximization of the individual return rather than the maximization of the joint return, they enter into a contract, such as a licensing contract, hoping to modulate the behavior of each party.