Absorptive Capacity in High-Technology Markets: The Competitive Advantage of the Haves

<jats:p> The rapid rate of knowledge obsolescence in many high-technology markets makes it imperative for firms to renew their technological bases constantly. Given its critical importance, excellence in renewal of technological base would serve as a dynamic capability. Drawing on past literature, we identify this dynamic capability associated with acquiring and utilizing external technological know-how with the notion of absorptive capacity (AC). </jats:p><jats:p> We ask the following questions: (a) What would cause some firms to have a higher AC than others? and, (b) What is the impact of AC on a firm’s profitability? </jats:p><jats:p> We build a conceptual framework suggesting that marketing, R&amp;D, and operations capabilities have a significant positive impact on a firm’s AC. We test our framework on a data set of firms in high-technology markets. Using an econometric technique called stochastic frontier estimation, we infer the AC of firms from an observation of the know-how they actually absorb. We find that firm-specific capabilities significantly impact AC. Also, we find that AC has a significant impact on profitability and that this impact is moderated by the pace of technological change: the greater the pace of change, the greater the impact. </jats:p>