Abstract
Several scholars have emphasized how uncertainty and a lack of information impede the functioning of markets for technology. However, previous research has generally neglected the fact that the advantages of more public information do not accrue equally to all firms. One might intuit that an improvement in the informational environment will particularly benefit those firms that frequently rely on external collaborations. Instead, our theoretical model predicts that the opposite will happen. We show that, when firms differ in the extent of their private information about the pool of external collaborators and ideas, an improvement in the informational environment achieved through mandatory disclosure of collaborations reduces the comparative advantage of those firms that were provided with better private information prior to the mandated disclosure. These were precisely the firms that used to collaborate to a great extent with external inventors. These firms will experience a relative decline in both the quantity and quality of ideas developed in collaboration with external inventors—especially with those collaborators not yet publicly known for the quality of their previous work—with respect to the firms that collaborated less extensively before mandatory disclosure. To test our theory, we construct a unique panel dataset on 276 publicly traded companies in the medical device industry, which is a sector in which physicians often collaborate with firms to generate and market new inventions. Then we assess the effect on innovation of an exogenous increase in information induced by the Physician Payment Sunshine Act, which was passed into law as part of the Affordable Care Act. Results are largely consistent with our theoretical predictions.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.