INO Research Seminar

Seminar by
Alfonso Gambardella, Bocconi University

Technological Breadth, Product Market Fragmentation and the Market for Technology: Evidence from the Software Security Industry

Joint work with
Marco Giarratana, Carlos III University

Abstract:

The growth of the so-called “markets for technology” pushes for a better understanding of their determinants. So far the literature on this topic has emphasized the impact of transaction costs and intellectual property rights. In this paper we focus on a different aspects, viz. the generality of the technology and its interplay with the fragmentation of the downstream markets into separate sub-market niches. Central to our model is that a general technology embraces more applications but it is less suited for each of them. As a result, the model shows that the probability of licensing a more general technology increases only when downstream markets are fragmented. We test this idea by employing data in the US Security Software Industry, which has shown an increasing fragmentation over time, and uses well defined patented algorithms as its key technology. By using a 1993-2001 panel of the 87 firms with at least one US patent in specific software security patent classes between 1976-2000, we find that, after controlling for many factors, more general technologies are less likely to be licensed when markets are not fragmented, and they are more likely to be licensed when markets are fragmented. We also confirm the results of the previous literature that greater intellectual property protection encourages technology licensing. Finally, we provide several robustness checks. Given the ideal features of the Software Security Industry for our goals, we

think that our analysis has uncovered some general characteristics of the functioning of technology markets.

The paper for the seminar is available by email request.

Alfonso Gambardella (PhD, Stanford 1991) is Professor of Management at the Università Commerciale "Luigi Bocconi", Milan, Italy. His research interests are in the economics and management of technology and innovation. He has published journal articles in this field in leading journals, and has participated in numerous international research projects. He published books with MIT Press, Cambridge University Press, and Oxford University Press. Among the others, his Markets for Technology (with Ashish Arora and Andrea Fosfuri) is widely cited.