Abstract The relationship between competition and innovation is difficult to disentangle, as exogenous variation in market structure is rare. The 1952 breakup of Germany’s leading chemical company, IG Farben, represents such a disruption. After the Second World War, the Allies occupying Germany imposed the breakup because of IG Farben’s importance for the German war economy instead of standard antitrust concerns. In technology areas where the breakup reduced concentration, patenting increased strongly, driven by domestic firms unrelated to IG Farben. An analysis of patent texts shows that an increased propensity to patent does not drive the effect. Descriptively, IG Farben’s successors increased their patenting activities as well, and their patenting specialized relative to the pre-breakup period. The results are consistent with a breakup-induced innovation increase by the IG Farben successors, which then spilled over to the wider chemical industry.
Filling the Gap: The Consequences of Collaborator Loss in Corporate R&D
R&R at Management Science Discussion PaperHere (SSRN)
with Fabian Gaessler, Karin Hoisl, Dietmar Harhoff and Matthias Dorner
(Older version entitled ‘Filling the Gap - Firm Strategies for Human Capital Loss’: AOM Best Paper)
Abstract We examine how collaborator loss affects knowledge workers in corporate R&D. We argue that such a loss affects the remaining collaborators not only by reducing their team-specific capital (as argued in the prior literature) but also by increasing their bargaining power over the employer, who is in need of filling the gap left by the lost collaborator to ensure the continuation of R&D projects. This shift in bargaining power may, in turn, lead to benefits, such as additional resources or more attractive working conditions. These benefits can partially compensate for the negative effect of reduced team-specific capital on productivity and influence the career trajectories of the remaining collaborators. We empirically investigate the consequences of collaborator loss by exploiting 845 unexpected deaths of active inventors. We find that inventor death has a moderate negative effect on the productivity of the remaining collaborators. This negative effect disappears when we focus on the remaining collaborators who work for the same employer as the deceased inventor. Moreover, this group is more likely to be promoted and less likely to leave their current employer.
Competing for Talent: Large Firms and Startup Growth
with James Bessen and Ronja Röttger Discussion Paper on SSRN
Abstract This paper explores the impact of large firms’ hiring in local labor markets on the salaries offered by startups and on startup growth and performance. We analyze firm data matched to help-wanted ads and find strong evidence of “crowding out.” A standard deviation increase in the share of ads posted by large firms raises startup pay offers by 5-10% for critical managerial, STEM, and sales jobs, and it reduces expected startup growth by 36%. Crowding is diminished by employee mobility and by spillovers to startups in closely related businesses. It is increased by big firm markups, which may have a large effect on startups. Results are robust to a shift-share instrumental variable strategy. Crowding has important implications for firm strategy, regional policy, and for understanding the slowdown in the aggregate growth of startup firms.
In Progress
Valuing Pharmaceutical Patent Thickets
with John McKeon and Timothy Simcoe
Abstract (Preliminary) Policymakers have expressed concerns about strategic use of the patent system by pharmaceutical companies. Motivated by those concerns, we study the valuation of patents throughout the drug development life cycle. We propose a simple model of patent value that highlights the resolution of scientific uncertainty as well as the impact of new patents on market exclusivity. Using data on patenting throughout the drug development process, we find that stock market event studies indicate that patents issued later in the drug-development process are more valuable, even though these "secondary" patents are generally viewed as weaker than the more highly cited patents covering a new molecule. In regressions that control for uncertainty, we find that additional exclusivity, continuation status, and new use classification remain important factors to explain patenting and patent value.
