Trademarks, specialized complementary assets, and the external sourcing of innovation

Abstract

In this article, I study the relationship between valuable trademarks and a firm’s technology sourcing strategy. The Profiting from Innovation (PFI) and Transaction Cost Economics (TCE) perspectives have generated competing predictions regarding firms’ historical stock of valuable trademarks and their decision to pursue external technology sourcing. To conduct the empirical analysis, I use a sample of innovator firms in the manufacturing sectors from the Division of Innovative Labor survey, matched to the USPTO trademark data. Consistent with the TCE perspective, I find that firms with valuable trademarks are less likely to commercialize external inventions, and are likely to have lower innovation performance if they do so. I further show a boundary condition for PFI such that when firms are new entrants to an industry but already holding valuable trademarks, they are more likely to commercialize external innovations.