The Cost of Integrating External Technologies: Supply and Demand Drivers of Value Creation in the Markets for Technology
Strategic Management Journal (Forthcoming)
38 Pages Posted: 16 Feb 2010 Last revised: 29 Oct 2015
Date Written: July 30, 2012
Abstract
A classic decision faced by technology suppliers and buyers is whether to compete in the product markets or cooperate through licensing. We address this question by examining an important, demand-side barrier to licensing -- the buyers’ cost of integrating a licensed technology. We argue that this cost can be affected by suppliers’ knowledge-transfer capabilities, buyers’ absorptive capacity, and the cospecialization between R&D and downstream activities in the buyers’ industries. Following this argument and a stylized bargaining model, we hypothesize that the supplier’s knowledge-transfer capability stimulates licensing. Moreover, the importance of this capability increases when licensing to industries where potential buyers have weak absorptive capacity or R&D and downstream activities are cospecialized. We find support for our hypotheses using a panel dataset of small “serial innovators.”
Keywords: technology licensing, markets for technology, technology integration costs, cospecialized complementary assets, absorptive capacity, knowledge-transfer capabilities
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