Ongoing Research

Keeping invention confidential (with Colleen Cunningham

This study investigates use of a prevalent but rarely studied form of intellectual property protection: secrecy. Building on existing survey evidence of firm-level, cross-sectional use of secrecy, we document the effect of stronger trade secret legal protections on the use of secrets and related inventive activity. Our setting is the US oil and gas hydraulic fracturing (fracking) industry, from 2014 to 2018, in states where firms are required to disclose fracking ingredients to regulators barring substantiated claims of trade secrets. We examine how the enactment of the federal 2016 Defend Trade Secrets Act (DTSA) affects well-level secrecy use across states with varying levels of pre-DTSA secrecy protection. We find substantial increases in the use of secret ingredients and new secret use, indicating increased inventive activity. Furthermore, we find wells with secret ingredients are more productive. Supplementary tests provide additional evidence that we are capturing policy effects and address alternative explanations. Our results provide rare empirical evidence on actual secrecy use and contribute to our understanding of how appropriability shapes inventive activity.

Competitive pressures, resource redeployment, and technological change (solo)

The study investigates how firms reallocate non-scale free, non-fungible resources in absence of a decline in demand. Competitor actions may instigate a creation of idle resources, which accelerate technological change in a sector where they are redeployed. On average, firms reduce activity in the affected industry, in particular on riskier projects. In addition, some of the idle resources percolate into related businesses, shaping technological advances. I exploit an oil price shock in 2014 and study within oil and gas industry investment as well as the technological change in the wind power industry. Oil and gas firms reduced activity in the oil and gas industry while windfarms built by firms redeploying oil and gas assets were more likely to use a new technology, chiefly larger wind turbines. The effect is driven by windfarms located near existing oil and gas fields and offshore windfarms where the impact of the oil price shock was the greatest, suggesting that redeployment costs are an important driver of technological change.

Platform entry and complementor innovation (with Ahmadreza Mostajabi

Prior research has produced conflicting findings on complementors’ response to platform owner entry, showing both higher and lower complementor innovation in affected domains. We reconcile these findings by introducing a resource redeployment lens. Following platform entry, complementors with high adjustment costs increase innovation on the focal platform, whereas low adjustment cost complementors shift innovation to a competing platform. We empirically test our hypotheses analyzing Apple’s entry in the App Store with the “Files” application. Consistent with our arguments, we find that high adjustment cost developers increase ex-post innovation on the focal platform (Apple App Store), whereas low adjustment cost developers redeploy resources to a competing platform (Google Play Store). We contribute to platform and resource redeployment literatures, highlighting heterogeneity in complementor response to platform entry.

Not So Fast: How Large-Scale Market Entry Impacts Firm Performance and Innovation (with Ahmadreza Mostajabi and Keyvan Vakili)

The literature on multisided platforms focuses primarily on their ability to resolve market frictions and facilitate matchmaking. However, the downside of resolving these frictions has largely been overlooked. We argue that extensive resolution of market frictions such as frictionless market entry can cause participants to overlook the heterogeneous nature of different markets and engage in myopic market expansions, leading to customer dissatisfaction, lower performance, and innovation rate. We test our arguments in the context of Apple's App Store. We find that app developers' large-scale market expansion negatively affects their ratings, downloads, financial performance, and innovation rate in the long run, despite a short-term growth in their customer base. We contribute to the literature by highlighting the negative side of frictionless market entry on platforms.

Markets for trade secrets (with Rohin Vrajesh and Colleen Cunningham

Prior literature in strategic management has largely focused on codified forms of IP such as patents. However, firms cite trade secrets as the more common and effective manner to protect their intellectual assets. This study highlights trade secrets are property rights and documents their use in markets for technology. Using transaction agreement data involving publicly traded US firms for which we obtain royalty payments, we find that 31% of transactions in the sample include a trade secret. When transacted along with patents, trade secret deals have longer payment schedules and demand a higher premium relative to patent-based transactions alone. The evidence suggests that markets for trade secrets are common and highly valuable.

Disclosure environment, IP, and product market performance: evidence from patent-product linked data and the America Invents Act (with Rohin Vrajesh

We study the link between intangible resources and their application in the product market. The resource-based view in strategic management posits that rarer and more difficult to imitate resources enable superior performance, but embedding such resources in commercialized products may be difficult due to the leap in technological application they require. We find that more incremental, less novel intangible resources (patents) are more likely to be embedded in products. We also show that an exogenous change in the disclosure environment, shifting incentives from “first to invent” to “first inventor to file” is associated with a reduction in the scope of patents, consistent with the interpretation that firms “rush to the patent office”: following this environmental change, products contain less novel patents, on average. Thus, this paper provides rare evidence on the actual commercial use of patents in products and how patent and environmental characteristics translate into product market innovation. 

Do innovation possibilities decline with technological age? (with Sendil Ethiraj)

This study is motivated by the observation that innovation appears to have become more difficult over time, as evidenced by larger R&D teams and a lower patent to R&D expenditure ratio. Distance from the innovation possibility frontier is potentially a crucial determinant of feasible technological change, yet little consensus has been reached about its impact on firm behavior. One reason could be that the underlying theoretical models differ in their assumptions about the world. In the industrial organization literature, for example, the predominant assumption is that technologies rely on a set of resources, which, when exhausted, foreclose the possibility of further technological improvement (the resource space view). An alternative convention prevalent in evolutionary economics and behavioral theory of the firm is that technologies evolve by addressing and solving problems that arise in the environment (the problem space view). Differentiating between the two conventions may enable theoretical consensus, delineating empirical tests that allow to tease out competing theories. We describe and test the predictions arising from these two conventions—resource space and problem space view—on around 100,000 oil wells drilled in the U.S. in 2010-2017. We exploit an exogenous shock to the incentives to innovate across technologies and document mechanisms driving the results. The findings are consistent with the problem space view, suggesting that technology age may render lower innovation possibilities as firms solve available problems in the environment.