The Market for Technology: Harnessing Creative Destruction

82 Pages Posted: 25 Sep 2017 Last revised: 2 Jul 2018

Date Written: June 25, 2018

Abstract

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

Arqué Castells, Pere and Spulber, Daniel F., The Market for Technology: Harnessing Creative Destruction (June 25, 2018). Northwestern Law & Econ Research Paper No. 18-14. Available at SSRN: https://ssrn.com/abstract=3041558 or http://dx.doi.org/10.2139/ssrn.3041558

Pere Arqué Castells (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Daniel F. Spulber

Northwestern University - Kellogg School of Management ( email )

Kellogg Global Hub
2211 Campus Dr.
Evanston, IL 60208
United States
847-491-8675 (Phone)
847-467-1777 (Fax)

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