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Network Effects in the Governance of Strategic Alliances

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  • David T. Robinson
  • Toby E. Stuart

Abstract

We argue that the stock of prior alliances between participants in the biotechnology sector forms a network that serves as a governance mechanism in interfirm transactions. To test how this network substitutes for other governance mechanisms, we examine how equity participation and pledged funding in strategic alliances vary with two features of the way alliance participants are positioned in the network of past deals: proximity, or how close two firms are to one another in the network; and centrality, or how deeply a firm is embedded in the network. As centrality and proximity increase, equity participation (measured by size and propensity) diminishes, whereas pledged funding increases. Copyright 2007, Oxford University Press.

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  • David T. Robinson & Toby E. Stuart, 2007. "Network Effects in the Governance of Strategic Alliances," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 23(1), pages 242-273, April.
    • Handle: RePEc:oup:jleorg:v:23:y:2007:i:1:p:242-273
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    File URL: http://hdl.handle.net/10.1093/jleo/ewm010
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