The product market and the market for "ideas": Commercialization strategies for technology entrepreneurs
Citation: Joshua S. Gans, Scott Stern (2003) The product market and the market for "ideas": Commercialization strategies for technology entrepreneurs. Research Policy (RSS)
DOI (original publisher): 10.1016/S0048-7333(02)00103-8
Semantic Scholar (metadata): 10.1016/S0048-7333(02)00103-8
Sci-Hub (fulltext): 10.1016/S0048-7333(02)00103-8
Internet Archive Scholar (search for fulltext): The product market and the market for "ideas": Commercialization strategies for technology entrepreneurs
Tagged: Business (RSS) Economics (RSS), Entrepreneurship (RSS), Strategy (RSS)
Gans and Stern attempt to link early firms strategy to a what they call a commercialization environment that describes the micro-economic and strategic conditions facing a firm that is attempting to turn their idea into a value propositions. The main question is why some new firms cooperate with and engage directly with established firms while, in others, they attempt to undermine them. They argue that may or may not be a market for ideas that drives these decisions.
The paper builds heavily on Teece (1986)'s hugely influential Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy that describes appropriability regimes and complementation assets and the role they play in strategic decision-making. The paper emphasizes the way that establish firms, who often have the complementary assets necessary to produce and commercialize a product, often also have a great incentive to appropriate an innovation. Gans and Stern offer the example of Robert Kearns who invented an intermittent windshield wiper and tried to sell it to Ford, only to have Ford reject it and then introduce the innovation on its own.
Gans and Stern explain that entrepreneurs can either profit through entering into the product market themselves but must avoid detection by established firms with the ability to imitate quickly. Alternatively, an entrepreneurs could engage in a market for ideas and sell or license their idea to an establish firm. However, this often requires that the new entrepreneur discloses their innovation to the firm who be able to imitate.
Gans and Stern set up a 2x2 with high and low excludability environment that describes how well a firm can exclude an incumbent with knowledge of the innovation from imitating and competing with the new firms and high and low complementary asset environment which describes the extent to which an incumbent's complementary assets contribute to the value propositions of the new technology.
They argue that low-low is the attackers advantage where a new product firm will be well-positioned to succeed, high-high is idea factories might be something like biotechnology where companies can create and patent new innovations and then partner easily with established firms. The off-diagonals are less clear. High-low is greenfield competition in which both cooperation and competition may be effective (the authors cite Nintendo, Xerox, and other platform companies as examples) and low-high is reputation-based idea trading which might describe Cisco's relationship with new firms that it often partners with and buys.
Theoretical and Practical Relevance
Gans and Stern have been cited more than 280 times since the article was published in 2003, primarily in the literature on entrepreneurship.