General technological capabilities, product market fragmentation, and markets for technology

The combination of a firm capability (i.e., ability to generate general purpose technologies) and a market structure condition (i.e., fragmentation of downstream submarkets) may encourage licensing in an industry. That is, the probability of licensing should increase when product markets are fragmented and technologies support general purposes. Evidence consistent with these predictions emerges from a 1993 to 2001 panel of 87 firms that owned at least one U.S. software security patent between 1976 and 2001. The analysis uncovers some fundamental characteristics of how external knowledge exploitation functions; in particular, technology markets thrive when product markets are fragmented and firms have the capability to produce general technologies.