Productivity and the Role of Complementary Assets in Firms’ Demand for Technology Innovations
Scheller College of Business, Georgia Tech
Stuart J. H. Graham
Georgia Institute of Technology - Scheller College of Business; United States Patent and Trademark Office
Matthew John Higgins
Scheller College of Business, Georgia Institute of Technology; National Bureau of Economic Research (NBER)
Georgia Institute of Technology - College of Management
September 30, 2009
This paper uses data on transactions in the pharmaceutical industry to examine the demand-side of technology outsourcing. By integrating a transaction-cost economics perspective with the analysis of internal R&D capabilities, we find that firms with relatively more cospecialized complementary assets or relatively strong internal R&D productivity have a lower propensity to source a technology from outside the firm. We show, however, that since downstream capabilities and internal R&D are complementary activities in the presence of asset specificity and transaction costs, a decrease in internal R&D productivity reduces the marginal vale of the downstream assets within firm boundaries, thus stimulating the demand for external technology.
Number of Pages in PDF File: 34
Keywords: Markets for Technology, Innovation, Productivity, Cospecialized Complementary Assets, Pharmaceutical Industry
JEL Classification: L22, G34, L65, O32, O34working papers series
Date posted: December 1, 2008 ; Last revised: October 6, 2009
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