Jay Pil Choi is University Distinguished Professor at Michigan State University. His research focuses on economic issues related to network effects, tying arrangements, and intellectual property rights. He was Co-Editor of International Journal of Industrial Organization and currently serves on the Editorial Board of Information Economics and Policy. He was also Editor of Recent Developments in Antitrust: Theory and Evidence that was published by the MIT Press. His academic accomplishments were acknowledged by the Tae-Sung Kim Memorial Prize, the Maekyung-KAEA Economist Award, the Cho Rakkyo Prize, and the Dasan Economist Award. He also served as the President of the Korea-America Economic Association.
What caused the decline of American hegemony and the rise of Japan as an economic superpower in global competition? Transfer of cutting-edge technologies to the Japanese firms has been one of the answers frequently cited to the question. According to this argument, the myopic U.S. firms sold their future to the Japanese firms by licensing the state-of-the-art technologies for short-term profits. As a result, they lost ground to their Japanese counterparts in the succeeding generation of technology development. In this context, it is not surprising to witness a recent trend to safeguard the cutting-edge technologies by the U.S. firms and the newly advanced Japanese firms against the upstart firms in the newly industrialized countries (NICs). However, it will be argued that the logic behind the alleged reluctance of the owners of frontier technologies to license their core technologies is incomplete in many respects. With the use of an "incomplete contract approach," I propose a new framework to shed some new light on the issue. In addition, the explanatory power of the incomplete contract approach will be empirically tested using the licensing contract data involving NICs (Korea) and the developed countries (Japan and the U.S.).