Does Trading Spur Specialization? Evidence from Patenting

79 Pages Posted: 21 Dec 2020 Last revised: 1 Jul 2022

See all articles by Pengfei Han

Pengfei Han

Peking University, Guanghua School of Management

Chunrui Liu

University of International Business and Economics (UIBE) - Business School

Xuan Tian

Tsinghua University - PBC School of Finance

Date Written: October 1, 2020

Abstract

Exploiting staggered establishments of patent exchanges in China, we examine how patent trading affects firm innovation and specialization. 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 specialization patterns 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. Our findings suggest patent trading promotes comparative-advantage- based specialization and enhances firm performance. Relieving trading frictions in the market for technology mitigates the negative consequences induced by capital market frictions. Our findings shed light on how the market for technology contributes to the aggregate economy via the specialization-promoting channel.

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

JEL Classification: O31, O33, O34, G14

Suggested Citation

Han, Pengfei and Liu, Chunrui and Tian, Xuan, Does Trading Spur Specialization? Evidence from Patenting (October 1, 2020). Available at SSRN: https://ssrn.com/abstract=3681360 or http://dx.doi.org/10.2139/ssrn.3681360

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

University of International Business and Economics (UIBE) - Business School ( email )

Beijing
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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