The Market for Technology: Harnessing Creative Destruction
82 Pages Posted: 25 Sep 2017 Last revised: 2 Jul 2018
Date Written: June 25, 2018
By creating gains from trade, technology transfers harness creative destruction. We show that technology transfers are central to the economics of technological change. We provide an analytical framework for identifying business creation and business stealing in the market for technology from the derivatives of the gains from trade with respect to technological proximity, market proximity and the interaction between the two. We create a dataset that tracks interactions in the market for technology between publicly held US companies with at least one patent in the USPTO. Estimates of the probability of a match between pairs imply that the gains from trade are increasing with respect to technological and market proximity, and decreasing with respect to the interaction of the two. Combined with the identification framework, this sign combination implies that both business creation and business stealing exist. When technological proximity is high but market proximity is low the gains from trade are positive because only business creation is present. However, with perfect product market overlap business creation is totally offset by business stealing.
Keywords: Market for technology, Patents, Innovation
JEL Classification: O31, O34
Suggested Citation: Suggested Citation