The Market for Technology: Harnessing Creative Destruction

Abstract

The combination of existing technologies is necessary for innovation. An important aspect of technology exchange between firms is that it generates both business creation and, possibly, business stealing. These countervailing effects generate potentially misaligned interests between technology adopters and providers. We propose an empirical framework for studying the prevalence of business creation and business stealing in technology transfers from the effect of technological proximity and market proximity. We estimate the model on a new dataset that tracks interactions in the market for technology across a broad range of exchange modes between publicly held US companies. We obtain two main findings. First, technological proximity has a very robust positive effect on business creation and matching patterns. Second, market proximity has a negative but relatively small effect on matching patterns that is suggestive of business stealing effects. We use our results to assess the relevance of IP rights in deterring undesirable technology adoptions and discuss the suitability of alternative strategies of technology exchange.