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Behind the Scenes: Sources of Complementarity in R&D
Author(s) -
Ceccagnoli Marco,
Higgins Matthew J.,
Palermo Vincenzo
Publication year - 2014
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/jems.12048
Subject(s) - complementarity (molecular biology) , economies of scope , absorptive capacity , panel data , industrial organization , business , scope (computer science) , microeconomics , economics , monetary economics , econometrics , computer science , economies of scale , genetics , programming language , biology
Management consultants increasingly recommend that internal R&D be outsourced; however, little is known about the substitution or complementarity between internal and external R&D. Through structural estimation of a flexible innovation production function we provide a deeper understanding of firm‐level drivers of complementarity between these two types of investments. Our analysis is based on a unique panel data set on the R&D and in‐licensing expenditures of pharmaceutical firms. Our results suggest that internal R&D and in‐licensing are neither complements nor substitutes. We find that the degree of complementarity is enhanced for firms with stronger absorptive capacity, economies of scope, and licensing experience.