Firm Matching in the Market for Technology: Harnessing Creative Destruction

Abstract

We develop and estimate a model of firm-to-firm matching in the market for technology between technology providers and adopters. The model provides a framework for identifying business stealing and business creation in the market for technology from the effect of technological proximity and market proximity on transaction outcomes. We create a dataset that tracks interactions in the market for technology across a broad range of exchange modes between publicly held US companies with at least one patent in the USPTO. Estimates of the matching equation imply that the probability of a match between firms is 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. Our framework reveals substantial heterogeneity in the relevance of business stealing in transactions across industries, technological fields, firm size, time periods and modes of exchange. We offer recommendations for managers of companies that are either technology providers or adopters.