Technological Competition and Strategic Alliances*

Using a large unique patent-strategic alliance dataset over the period 1990 to 2004, we first show that firms faced with greater technological competition are more likely to form alliances. Technological competition is captured by a cosine similarity measure between a firm’s own patent output and the patent output of all other firms in the economy. We further show that alliances lead to more patents afterwards at both client and partner firms, especially for partner firms faced with greater technological competition. Finally, we show that related patents increase significantly at both client and partner firms, whereas innovative efficiency and the productivity of individual inventors increase significantly only at partner firms. Our results are robust to endogeneity concerns. We conclude that technological competition is an important impetus for redrawing the boundaries of the firm in order to accelerate corporate innovation.