Technological similarity in acquisitions and innovative performance revisited: Does the nature of technology matter?

This article explores the effect of technological similarity in acquisitions on invention quantity and quality. In doing so, we confirm previous findings in the literature suggesting that technological similarity exhibits an inverted U-shaped relationship with innovative output and a negative relationship with average invention quality. However, we identify the nature of the technology as an important moderating factor for both relationships. We distinguish between two types of technologies, complex and discrete, and suggest that at high levels of technological similarity, invention quantity and average quality increase more in complex technology industries as compared to discrete technology industries. These effects are attributed to innovation cumulativeness and the interdependencies developed between patent rights in complex technology settings. A study of acquisition and patenting activity in two industries over a sixteen-year period provides empirical support to our claims.