Strategic Patent Acquisitions: The Role of Technological Proximity and Patent Portfolio Size

I develop a theoretical model in which firms make strategic patent acquisition decisions based on technological proximity and patent portfolio size. Firms derive higher value from patents that closely align with their existing technology, while the marginal benefit of additional patents diminishes as portfolios grow. Using a two-step estimation approach, I analyze patent transaction data and find that technological proximity positively affects patent value, whereas patent portfolio size exhibits diminishing returns. The negative effect of portfolio size is more pronounced for large firms and manufacturing industries. The results suggest that firms should strategically balance technological alignment and portfolio expansion.