Network Effects in the Governance of Strategic Alliances in Biotechnology

56 Pages Posted: 16 Mar 2000

See all articles by David T. Robinson

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Toby Stuart

University of California, Berkeley - Haas School of Business; Harvard University - Entrepreneurial Management Unit

Date Written: Undated

Abstract

Strategic alliances are commonplace in the biotechnology sector. We posit that the stock of prior alliances between participants in the biotech industry produces a network---a communications infrastructure established by past transactions---through which information is transmitted. We argue that this network serves as a governance mechanism that substitutes for other forms of control in inter-firm transactions. To test our hypothesis, we examine how equity participation and the amount of funding pledged in strategic alliances vary with two features of the way alliance participants are positioned in the network of past deals: (i) centrality, a measure of how deeply embedded a firm is in the alliance network; and (ii) proximity, a measure of how close two counterparties are to one another in the network. The results establish that the alliance network mitigates holdup problems in interfirm transactions.

JEL Classification: G30, G34, G39, M13, O39

Suggested Citation

Robinson, David T. and Stuart, Toby E., Network Effects in the Governance of Strategic Alliances in Biotechnology (Undated). EFA 0489. Available at SSRN: https://ssrn.com/abstract=214977 or http://dx.doi.org/10.2139/ssrn.214977

David T. Robinson (Contact Author)

Fuqua School of Business, Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0120
United States
919-660-8023 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

Toby E. Stuart

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

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