Don't Fence Me in: Fragmented Markets for Technology and the Patent Acquisition Strategies of Firms

32 Pages Posted: 7 Dec 2003

See all articles by Rosemarie Ham Ziedonis

Rosemarie Ham Ziedonis

Boston University - Questrom School of Business

Date Written: October 2003


How do firms avoid being fenced in by owners of patented technologies used, perhaps unknowingly, in the design or manufacture of their products? This paper examines the conditions under which firms expand their own portfolios of patents in response to potential hold-up problems in markets for technology. Combining insights from transaction cost theory with recent scholarship on intellectual property, I predict firms will patent more aggressively than otherwise expected when markets for technology are highly fragmented (i.e., ownership rights to external technologies are widely distributed); this effect should be more pronounced for firms with large investments in technology-specific assets and under a strong legal appropriability regime. Although these characteristics of firms and their external environments have been highlighted in the theoretical literature, prior research has not explored the extent to which such factors interact to shape the patenting behavior of firms. To empirically test these hypotheses, I develop a citations-based fragmentation index and estimate the determinants of patenting for 67 U.S. semiconductor firms during 1980-1994. Accumulating exclusionary rights of their own may enable firms to safeguard their investments in new technologies while foregoing some of the costs and delays associated with ex ante contracting.

Keywords: patents, hold-up, semiconductors, innovation, intellectual property rights

JEL Classification: 031, 032, L63

Suggested Citation

Ziedonis, Rosemarie Ham, Don't Fence Me in: Fragmented Markets for Technology and the Patent Acquisition Strategies of Firms (October 2003). Available at SSRN: or

Rosemarie Ham Ziedonis (Contact Author)

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

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