Does Trading Spur Specialization? Evidence from Patenting

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See all articles by Pengfei Han

Pengfei Han

Peking University, Guanghua School of Management

Chunrui Liu

Tsinghua University - PBC School of Finance

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: August 26, 2020

Abstract

Exploiting staggered establishments of patent exchanges in China, we examine how patent trading affects firm innovation and specialization. We find that patent trading and in-house innovation are complements for patent sellers, whereas they are substitutes for the buyers. Our findings demonstrate that the market for technology induces (i) specialization between patent buyers and sellers, (ii) specialization between patent licensors and licensees, and (iii) specialization based on a firm’s R&D efficiency. All these three patterns of specialization indicate that a firm's response to an emerging market for technology hinges on its comparative advantages. Firms with a comparative advantage in creating innovation redirect their resources from advertising to patenting activities, whereas firms with a comparative advantage in commercializing innovation switch their effort from patenting to advertising activities. Moreover, enhanced patent trading contributes to improved firm performance and increasing market concentration. Our findings suggest patent trading promotes comparative-advantage-based specialization and enhances firm performance.

Keywords: Innovation, Market for Technology, Patent Trading, Patent Licensing, Specialization, Division of Labor, R&D, Patent

JEL Classification: O31, O33

Suggested Citation

Han, Pengfei and Liu, Chunrui and Tian, Xuan, Does Trading Spur Specialization? Evidence from Patenting (August 26, 2020). Available at SSRN: https://ssrn.com/abstract=

Pengfei Han (Contact Author)

Peking University, Guanghua School of Management ( email )

No 5 Yiheyuan Road, Haidian District
Beijing 100871
China

HOME PAGE: http://https://sites.google.com/view/pengfeihan/home

Chunrui Liu

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

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