Firm Matching in the Market for Technology: Business Stealing and Business Creation

The combination of existing technologies is necessary for innovation. An important aspect of technology exchange between ?rms is that it generates both business cre- ation and, possibly, business stealing. These countervailing e¤ects generate potentially misaligned interests between technology adopters and providers. We propose an empir- ical framework for studying the prevalence of business creation and business stealing in technology transfers from the e¤ect of technological overlap and product market overlap. A fundamental identi?cation challenge is that product market overlap could con?ate business creation e¤ects. We propose two new asymmetric measures that allow us to separately identify the business stealing and business creation e¤ects of product market overlap. 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 ?ndings. First, product market overlap has a negative e¤ect on matching patterns that is suggestive of business stealing. Second, technological proximity has a positive e¤ect on matching patterns that is consistent with business creation. 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.