Advanced purchasing, spillovers and innovative discovery

Advanced product development distinguishes itself by being surrounded by a “cloud of technology spillovers” available to external users in proportion to their competence to commercialize them. The local capacity to commercialize spillovers is experience based and hence more narrow than the range of innovations. The cloud will therefore be incompletely explored. While the value of the cloud to society may be greater than the development investment, the value captured by the producer is often not sufficient to make the product development privately profitable. The producer faces the property rights problem of how to charge for the dual product it develops, the product itself and as much as possible for the technology cloud. The public and private customers, however, appreciate the situation differently. While the former appears in the double customer role of being interested in both the product procured and the spillover benefits to society, the latter is not interested in paying for spillovers that only benefit society. Marketing the product, therefore, involves the ability to present a credible case for the economic value to society of the spillovers. To do that, a theory is needed that demonstrates both the user value to the customer, and the entrepreneurial capacity of the economy to commercialize the spillovers. The theoretical argument is illustrated with the case of downstream industrial business formation around Swedish military aircraft industry.