Enhancing Research Productivity through the Market for Technology

Markets for technology typically enhance value creation though complementarities between upstream research and downstream commercialization capabilities. However, in this paper we focus on the additional benefits of external technology sourcing on the marginal productivity of internal upstream research. In particular, we focus on technology acquisitions and licensing, two of the most common external acquisition strategies in high tech industries, and certainly the most relevant in the biopharmaceutical industry, which constitutes the setting for our empirical study. We find that acquisitions enhance marginal productivity at a decreasing rate, whereas in-licensing enhances productivity when the buyer has greater science-based capabilities. Licensing and acquisitions are complementary strategies for the larger firms, since their joint adoption tends to improve synergies at the upstream research level, therefore increasing the marginal productivity of internal research.