Profiting from technological capabilities : Technology commercialization strategy in a dynamic context

This paper analyzes the technology commercialization strategy of an innovating firm when the incumbent firms possess specialized commercialization capabilities. According to the predominant framework, if the innovation is protected by a strong appropriabilty regime the optimal strategy is to license the innovation to an incumbent product firm. This paper argues by contrast that if the innovating firm has the ability to learn from its commercialization experience, its optimal strategy may be to commercialize alone or to pursue a hybrid arrangement (called co-promotion) whereby it licenses the innovation but retains the rights to participate in the commercialization process. The paper develops a game-theoretic model of the technology commercialization process and derives the conditions under which these different strategies are equilibrium outcomes. It then uses these to explain the pattern of arrangements pursued by biotech firms attempting to commercialize products in the pharmaceutical industry between 1978 and 2008. The results show that a firm is significantly more likely to use the hybrid strategy when there is a higher probability of commercializing a subsequent product in the same product field in future, when there are more firms competing to license the innovation, and when it is in a stronger financial position.