Capturing Benefits from Tomorrow’s Technology in Today’s Products: The Effect of Absorptive Capacity
Executive Summary — It seems clear that firms with an existing R&D function are better able to use related outside research than firms without an R&D function. But can specific products also "absorb" a firm's knowledge of related technologies? Using patent data and the example of automobile carburetors, Daniel Snow studied how companies may adapt a component of a "radical innovation" technology for their own current-technology products. He also poses a far-reaching question for companies: Can they capture the returns of these inventive activities? Key concepts include:
- Firms that have experience working with a "future technology" or radical innovation can efficiently adapt components from such innovations for their own current-technology products. They are also more likely to adapt such components.
- For any positive effects, the future-technology components should already be closely related to the product's current components.
- Whether firms can capture the returns of their own inventive activity may boil down to the fact that intellectual property is difficult to protect: The possibility of free-riding may affect firms' willingness to invest in future technologies.
In this paper, I propose and examine a specific means by which firms' R&D experience may be helping firms to improve their current-technology products: Firms that conduct future-technology R&D may be better at adapting components from related future technologies for use in their current-technology products. I use patent data to test whether automobile carburetor suppliers with higher levels of future-technology R&D activity are better at adapting components from related future technologies for use in carburetors.