Firm Matching in the Market for Technology: Business Stealing and Business Creation

Abstract

The combination of existing technologies is necessary for innovation. An important aspect of technology exchange between firms is that it generates both business creation and, possibly, business stealing. These countervailing effects generate potentially misaligned interests between technology adopters and providers. We propose an empirical framework for studying the prevalence of business creation and business stealing in technology transfers from the effect of technological overlap and product market overlap. A fundamental identification challenge is that product market overlap could conflate business creation effects. We propose two new asymmetric measures that allow us to separately identify the business stealing and business creation effects of product market overlap. We estimate the model on a new dataset that tracks interactions in the market for technology across a broad range of exchange modes between publicly held US companies. We obtain two main findings. First, product market overlap has a negative effect on matching patterns that is suggestive of business stealing. Second, technological proximity has a positive effect on matching patterns that is consistent with business creation. We use our results to assess the relevance of IP rights in deterring undesirable technology adoptions and discuss the suitability of alternative strategies of technology exchange.

Keywords: Market for technology, Patents, Innovation, Licensing, Cross-licensing, R&D alliances, Patent transfers, Business stealing

JEL Classification: O31, O34