‘Successes’ and ‘Failures’ in the Markets for Technology

Market-mediated contracts for technology trade are bound by several transaction costs. This paper argues that as these transaction costs become less severe, markets for technology can help improve three market failures: (i) RD (ii) externalities in potentially public RD and (iii) deviations from marginal cost pricing in the downstream product markets. In addition, with larger markets of potential users, the technology suppliers will have incentives to produce more 'general' technologies which span a wider number of firms or industries. Markets for technology also produce new failures. In particular, they induce deviation from marginal cost pricing in the sale of the technology, and they generate externalities associated with complementary R&D and other investments made by the independent buyers and suppliers that operate in them. The paper concludes by discussing policy implications. Copyright 2002, Oxford University Press.