Contract Theory: Implications for Biopharmaceutical Alliance Structure and Performance
32 Pages Posted: 26 May 2013 Last revised: 29 Dec 2016
Date Written: 2016
Alliances for new product development have been studied extensively in the operations management literature. Alliances between an innovator and a partner create value by utilizing their complementary capabilities. In this paper, we seek to understand what drives the alliance structure: The choice between collaborative alliances where the parties exert joint efforts and sequential alliances where, for the most part, the partner takes over going forward. Our analysis of a dataset of over 2000 biopharmaceutical alliances reveals our main finding: A key role of operational choices is to address contract theoretic concerns faced by an alliance. We also find that aligning the choice with predictions based on contract theory has consequences for performance. Therefore, our analysis not only has descriptive power about the drivers of alliance choice but also provides valuable insight into the performance and eventual fate of alliances formed.
Keywords: New Product Development, Alliances, Performance, Technology Management, Operations Management, Strategy, Signaling, Hold-up, Risk Aversion, Asymmetric Information
JEL Classification: O31, O32, O33, L24, L25
Suggested Citation: Suggested Citation