Resource Interdependence And Appropriability: A Study of Product And Process Inventions

Abstract: We examine how interdependence enhances a firm’s appropriation of return to its inventions. We propose that firms can enhance the profit impact of their inventions through multiple mechanisms but that tensions exist between the effects of these multiple mechanisms. Specifically we examine three routes to appropriating value from your inventions - building enhanced levels of interdependence between your resources, investing in substantial production capacities and obatining access to multiple markets. Using a new measure of interdependence based on textual coding of patent claims, we demonstrate this tension by showing that increased interdependence between a firm’s product-process inventions improves firm performance. However, this effect is most significant when the firm is low on these alternative scale-based mechanisms (production capacity, market access). This tension potentially changes the way we conceptualize drivers of persistent firm heterogeneity, survival, and evolution over industry lifecycle