This article explores the effect of technological similarity in acquisitions on invention quantity and quality. In doing so, we confirm previous findings in the literature suggesting that technological similarity exhibits an inverted U-shaped relationship with innovative output and a negative relationship with average invention quality. However, we identify the nature of the technology as an important moderating factor for both relationships. We distinguish between two types of technologies, complex and discrete, and suggest that at high levels of technological similarity, invention quantity and average quality increase more in complex technology industries as compared to discrete technology industries. These effects are attributed to innovation cumulativeness and the interdependencies developed between patent rights in complex technology settings. A study of acquisition and patenting activity in two industries over a sixteen-year period provides empirical support to our claims.
George Chondrakis is Assistant Professor of Strategy at Pompeu Fabra University. He is also International Research Fellow at the Novak Druce Centre for Professional Service Firms at Oxford’s Saïd Business School. His research interests are technology and innovation strategy, mergers and acquisitions, intellectual property rights and theory of the firm. He also teaches at the UPF Barcelona School of Management.
Farchi Thomas is Assistant Professor in the area of Human Behavior in Organizations at IAE Business School. Together with its position in the IAE, Tomas is Visiting Professor at the University of Oxford and a research fellow at the National Institute for Health Research (NIHR, UK).