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The Economics of Knowledge-Sharing Alliances

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The Economics of Knowledge-Sharing Alliances Joanne Oxley Rotman School of Management University of Toronto ESNIE 2006, Cargese The Economics of Knowledge-Sharing ... – PowerPoint PPT presentation

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Title: The Economics of Knowledge-Sharing Alliances


1
The Economics of Knowledge-Sharing Alliances
  • Joanne Oxley
  • Rotman School of Management
  • University of Toronto

ESNIE 2006, Cargese
2
The Economics of Knowledge-Sharing Alliances
New Institutional Economics
  • Joanne Oxley
  • Rotman School of Management
  • University of Toronto

ESNIE 2006, Cargese
3
The Economics of Knowledge-Sharing Alliances
Transaction Cost Economics
  • Joanne Oxley
  • Rotman School of Management
  • University of Toronto

ESNIE 2006, Cargese
4
Agenda
  • What are knowledge-sharing alliances and why
    should we study them?
  • What do (we think) we know about
    knowledge-sharing alliances?
  • Examples from the literature
  • Continuing areas of disagreement
  • Future opportunities in alliance research
  • Linking alliance research to the broader NIE

5
The Rise of Alliances
  • International alliance formation exploded in the
    1980s and continued apace through most of the
    1990s
  • Alliances are concentrated in high-technology
    sectors, but almost every industrial sector has
    some alliance activity
  • Over 50 of alliances are international (i.e.
    linking firms from different countries)
  • Europe, Japan and US together account for over
    90 of global alliances
  • Research suggests that between 50 and 80 of
    alliances fail to live up to expectations

6
What in the world is (not) a knowledge-sharing
alliance?
Equity joint venture
Franchise
Technology sharing
RD contract
Joint development contract
Patent license
Co-production agreement
7
A Baseline Definition
  • A knowledge-sharing alliance is an arrangement
    where two firms agree to (jointly) undertake some
    task that requires non-trivial transfer of
    knowledge from one party to the other (often in
    both directions)
  • Knowledge-sharing alliances exist in many
    domains technology-sharing alliances are a
    useful i.e., empirically tractable example
  • Can be useful to think in terms of alliance
    motives and extent of knowledge-sharing
    requirements

8
Alliance Motives and Knowledge Sharing
Requirements
9
Hazards of Knowledge-Sharing Alliances
  • Appropriability hazards
  • Hold-up problems
  • Free-riding

All stem from problems with
  • Specifying transaction
  • Monitoring performance
  • Enforcing compliance

10
Alliances as Hybrids
11
Market-Hierarchy Continuum of Alliance Forms

Pure Market Exchange
Merger or Acquisition
X
X
Unilateral Contracts
Bilateral Contracts
Equity Alliances and Joint Ventures
  • Licenses
  • Supply agreements
  • Marketing and distribution agreements
  • Cross-licensing
  • Co-development / RD agreements
  • Reciprocal supply agreements
  • Co-marketing agreements

Oxley, 1997
12
Structuring Knowledge-Sharing Alliances
Content / transaction characteristics
Partner identities
Governance
13
What Determines How?
WHO?
WHAT?
  • Research or design activities
  • Multiple projects
  • -gtMore hierarchical alliance forms

HOW?
  • Pisano, 1989
  • Gulati, 1995
  • Garcia-Canal, 1996
  • Oxley, 1997

14
Who Determines How?
WHO?
WHAT?
  • Multiple partners increase need for hierarchical
    controls
  • Overlapping or prior alliances reduce need for
    hierarchical controls

HOW?
Pisano, 1989 Gulati, 1995 Oxley, 1997
15
Different parts of the elephant?
KBV
TCE
Difficult to specify monitor Tacit / complex know-how Difficult to articulate and transfer
Reduce contracting hazards Repeat interactions Increase common understanding


16
Different parts of the elephant?
KBV
TCE
Difficult to specify monitor Tacit / complex know-how Difficult to articulate and transfer
Reduce contracting hazards Repeat interactions Increase common understanding
??? Overlapping capabilities ???

17
Absorptive Capacity
  • the ability to evaluate and utilize outside
    knowledge is largely a function of prior related
    knowledge. (Cohen Levinthal, 1990)
  • Partner-specific absorptive capacity relates to
    a firms ability to absorb knowledge from a
    specific outside party, and depends on presence
    of overlapping knowledge bases (Mowery, et al,
    1996 Dyer Singh, 1998 Lane Lubatkin, 1998)

18
Implications of Increased A.C. for Governance
  • Knowledge-based perspective
  • Increased absorptive capacity increases common
    understanding and ease of knowledge sharing -gt
    reduces need for formal governance (equity
    structure)
  • Transaction cost perspective
  • Increased absorptive capacity makes knowledge
    transfers easier, but also increases hazards of
    unintended knowledge transfers -gt implications
    for governance not immediately obvious

19
An inverted U? (Sampson, 2002)
  • High overlapping capabilities -gt easy to share
    knowledge, but little danger of misappropriation
    -gt contractual governance
  • Intermediate levels of overlap -gt absorptive
    capacity still sufficient to support knowledge
    sharing, but partners have greater incentive to
    act opportunistically and misappropriate
    partners knowledge -gt greater need for
    hierarchical controls -gt equity joint venture
  • Low levels of overlap -gt reduced absorptive
    capacity decreases appropriability hazards and
    reduces need for hierarchical controls -gt
    contractual governance

20
Different parts of the elephant?
KBV
TCE
Difficult to specify monitor Tacit / complex know-how Difficult to articulate and transfer
Reduce contracting hazards Repeat interactions Increase common understanding
Increase OR decrease hazards Overlapping capabilities Increase common understanding
Barrier to contracting Weak contracting law No effect?
21
From Who/What/How
  • to So What?

22
Measurable impact?
  • Do knowledge-sharing alliances have a measurable
    impact on a firms knowledge base?
  • Yes
  • Mowery, Oxley Silverman, 1996, 1998, 2001
    changes in patent citation patterns
  • Sampson, 2006 changes in patenting rates
  • Does governance matter?
  • Yes
  • Sampson, 2004, 2006 mismatched governance in
    RD alliance has patenting penalty
  • Oxley Wada, 2006 joint ventures increase
    alliance-related knowledge flows, but unrelated
    knowledge flows are lower than in bare
    licensing agreements

23
Endogeneity (its everywhere)
  • If same concerns drive partner selection,
    alliance scope, and governance choice, then we
    have endogenous matching and selection bias
  • And in fact we find that
  • Mowery, Oxley, Silverman (1998) Firms more
    likely to choose partners with overlapping
    capabilities (up to a point)
  • Sampson (2002) Firms with overlapping
    capabilities more likely to choose equity
    structures (up to a point)
  • Mowery, Oxley, Silverman (1996) Alliances where
    partners have greater overlapping capabilities
    have greater knowledge-flows, as do equity-based
    alliances.

WHOOPS!
24
(Partial) Methodological Fixes
  • 2-stage models (instrumental variables Heckman
    correction) Shaver, 1998 Hamilton Nickerson,
    2003
  • Panel data Jaffe, et al, 2005
  • Quasi-experiments e.g., regulatory changes
    Branstetter, et al, 2004

25
Who Determines What?
  • Direct competitors -gt reduced alliance scope
  • Industry laggards overlapping capabilities -gt
    increased scope

WHO?
WHAT?
  • Reciprocal relationship between scope and
    governance

HOW?
  • Oxley Sampson, 2004

26
Beyond discrete forms to contractual terms
mechanisms
  • Can we develop greater microanalytic detail to
    understand how specific contract structures map
    onto discrete structural alternatives used so
    far?
  • Can we deepen our understanding of governance
    properties of specific alliance agreement terms?
  • Reuer, Arino Mellewigt, 2005
  • Ryall Sampson, 2003
  • Reuer Arino, 2002

27
Conclusions
  • TCE has proven to be a productive lens for
    analyzing the organization and impact of
    knowledge-sharing alliances
  • Alliances are a useful test-bed for issues at the
    forefront of TCE, including understanding the
    relationship with knowledge-based perspectives

28
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