Chapter 15. The Market for Technology

This chapter reviews the growing literature on the “market for technology,” a broad term that denotes trade in technology disembodied from physical goods. The market for technology flourished during the nineteenth century in the United States. After several decades of relative decline, the market for technology has once again grown considerably in recent years, although the growth is uneven across sectors and across countries. Thus far, the literature has paid most attention to the supply of technology, and on the efficiency of market transactions in technology. A key contribution has been that the decision of firms to license depends on whether the revenues from licensing are higher than the rent-dissipation effect produced by increased competition in the licensor’s product markets. The literature has featured several factors that condition the tradeoff between licensing revenue and rent dissipation. For instance, general-purpose technologies enable the potential licensors to sell technology in product markets distant from the product operations of the licensors, and thus are more likely to be licensed. Another stream of research has focused on the factors, such as intellectual property protection, that condition the efficiency of licensing contracts. The study of the demand for external technology is less developed, and is an open area for future research. Another exciting area for future research is the relationship between the product market and the market for technology, of which a special but important case is the division of labor between technology specialists such as biotech firms, and their customers downstream, in this instance, pharmaceutical firms. The area in the most urgent need of attention is research on the consequences of the market of technology, on the rate and direction of inventive activity, and on productivity growth. This will also require a deeper understanding of the microfoundations of the market for technology.