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Cospecialized assets need '''relational specific investments''' from one or both side (c.f. Williams). In the context of '''incomplete contracts''' (Teece doesn't mention this explicitly), there will be the possibility of '''hold up''', making contracting (without fiat) '''costly and difficult'''.
Teece (1986) - Profiting From Technological Innovation (view source)
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|Has article title=Profiting From Technological Innovation
|Has author=Teece
|Has year=1986
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*This page is referenced in [[BPP Field Exam Papers]]
*Teece, D.J. (1986), "Profiting from technological innovation: Implications for integration, collaboration, licensing, and public policy," Research Policy. [http://www.edegan.com/pdfs/Teece%20(1986)%20-%20Profiting%20from%20technological%20innovation.pdf pdf]
@article{teece1986profiting,
title={Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy},
author={Teece, D.J.},
journal={Research policy},
volume={15},
number={6},
pages={285--305},
year={1986},
publisher={Elsevier}
}
==Abstract==
The '''appropriability regime''' is made up of two components:
#The '''nature of the technology'''(tacit/codified knowledge)
#The '''efficacy of legal mechnisms of protection'''
'''Patents do not confer perfect appropriability''':
*They are especially ineffective at protecting process innovations
*'''Legal requirements''' for upholding their validity or proving their infringement '''are high'''
'''Trade secrets''' may be a viable alternative if the product does not reveal the technology (or it can not be reverse engineered). This is likely to be true when knowledge is '''tacit''', rather than '''codified'''. Tacit knowledge is by definition hard to articulate, and can only be transmitted by demonstration. Simplistically, an appropriability regime might be regarded as '''strong''' or '''weak''', with regard to good the protection is.
*'''Cospecialized''' assets with '''bilateral dependence''': Both the innovation and the asset need to be specialized to work with each other
'''Cospecialized assets''' need '''relational specific investments''' from one or both side (c.f. Williams). In the context of '''incomplete contracts''' (Teece doesn't mention this explicitly), there will be the possibility of '''hold up''', making contracting (without fiat) '''costly and difficult'''.
==Implications for Profitability==
*'''Contracting'''
*'''Integrating'''
Under contracting the innovator will not have to make '''up front payments''' to build or buy the asset, which '''reduces risk''' and capital requirements. The contract can be for a '''strategic partnership''' rather than a '''simple buy-sell agreement''', and in the former case can bring credibility to the innovator. But, in the paradigmatic phase, this has two problems:
'''Integration gives incentive alignment and control''' (assuming again that the integration contract can be achieved). If the innovator owns the complementary asset then he will recieve the spillover benefits from increased demand too - this makes buying up such assets (or taking futures contracts against them) very attractive. If the protection is iron-clad, the innovator may be able to '''buy at competitive prices'''. Otherwise the assets form a '''bottleneck''', and should be '''ranked in order of their importance'''. Critical assets should be bought first, or traded for a minority position, assuming that this is feasible given the competitive environment. In industries that are changing rapidly, it is unlikely that a single firm will be able to hold all of the assets. Speed is also clearly of the essence.
In summary, if no complementary assets are required, the innovator should '''commercialize immediately'''. If this is not the case then, if the innovator is in a '''weak approbility ''' regime, needs a '''critical specialized asset''', has the '''cash to buy it''', and his '''competitors aren't better positioned''', he should '''buy it''', otherwise he should '''contract for it'''. On page 297, Teece provides a basic grid, in terms of how advantageously positioned the innovator is in terms of complementary assets, how well positioned he is to obtain them and the approbility regime, to "predict" whether the innovator will win the race. It should be noted that there are mixed modes between contracting and integrating, and the decisions may change as either the appropriability changes or the market changes (enters a paradigmatic phase).
It should be noted that there are mixed modes between contracting and integrating, and the decisions may change as either the appropriability changes or the market changes (enters a paradigmatic phase).
==Implications for R&D Strategy, Industry Structure and Trade Policy==
