The effects of multimarket contact on partner selection for technology cooperation

• Date: 01 February 2020
• Author: Wonsang Ryu,Thomas H. Brush,Jeffrey J. Reuer
• DOI: http://doi.org/10.1002/smj.3106
• Published date: 01 February 2020

RESEARCH ARTICLE

The effects of multimarket contact on partner

selection for technology cooperation

Wonsang Ryu

1

| Jeffrey J. Reuer

2

| Thomas H. Brush

3

1

School of Business and Technology Management, College of Business, Korea Advanced Institute of Science and

Technology, Daejeon, South Korea

2

Strategy and Entrepreneurship, Leeds School of Business, University of Colorado, Boulder, Colorado

3

Krannert School of Management, Purdue University, West Lafayette, Indiana

Correspondence

Wonsang Ryu, School of Business and

Technology Management, College of

Business, Korea Advanced Institute of

Science and Technology, Daejeon,

South Korea.

Email: wonsang.ryu@kaist.ac.kr

Abstract

Research summary:We investigate how multimarket con-

tact between prospective partners affects their partner

selection for technology cooperation. Drawing on the mul-

timarket competition literature, we argue that multimarket

contact generates mutual forbearance from opportunism by

enabling broad retaliation across the shared markets against

opportunism. As a result, multimarket contact between

potential partners makes them prefer each other as partners

for technology cooperation. We also claim that this positive

effect of multimarket contact on the formation of coopera-

tive agreements is more pronounced when the partners have

reciprocal contacts rather than nonreciprocal ones.

Managerial summary:This article explains one of the

reasons why rival firms can be good partners to each other

for technology cooperation. Managers might conjecture

that firms tend to avoid partnering with rival firms for

R&D because they may be more opportunistic than those

without product market overlap. However, our theory sug-

gests a counter-intuitive argument that market overlap

between partners rather deters them from engaging in

opportunistic behaviors because market overlap enables

them to broadly retaliate against such behaviors across the

shared product markets. Consistent with this idea, our

empirical results show that global top 200 biopharmaceuti-

cal companies are more likely to choose each other for

Received: 6 November 2016 Revised: 29 November 2018 Accepted: 29 November 2018 Published on: 11 December 2019

DOI: 10.1002/smj.3106

Strat Mgmt J. 2020;41:267–289. wileyonlinelibrary.com/journal/smj © 2019 John Wiley & Sons, Ltd. 267

technology cooperation as they share more product mar-

kets and this tendency is reinforced when their important

markets are different.

KEYWORDS

multimarket contact, mutual forbearance, opportunism, partner selection,

technology cooperation

1|INTRODUCTION

Partner selection is a key alliance decision that shapes whether firms achieve their collaborative

objectives (Kale & Singh, 2009), and thus the alliance literature has extensively investigated who

partners with whom (Gimeno, 2004; Gulati, 1995b; Li, Eden, Hitt, & Ireland, 2008; Reuer & Lahiri,

2014; Rothaermel & Boeker, 2008; Stuart, 1998). In particular, the literature on partner selection and

alliance formation has been interested in whether rivalry or market overlap between prospective part-

ners fosters or hinders alliance formation between them (e.g., Ang, 2008; Gulati, 1995b). In this

stream of research, the theoretical mechanisms used to link market overlap with partner selection

have tended to rely on either market power-based or resource-based perspectives. For instance, some

prior research based on the industrial organization economics tradition has maintained that firms with

market overlap enter into alliances in general, or R&D partnerships in particular, to better communi-

cate and support market collusion (e.g., Vonortas, 2000). In addition, other research has argued that

since potential partners with market overlap can suffer from a lack of resource complementarity, they

are unlikely to enter into alliances (e.g., Chung, Singh, & Lee, 2000). However, little attention has

been paid to another possible mechanism through which market overlap can affect partner selection:

the incentives to cooperate or compete within partnerships.

Confidence in partner cooperation, or “a firm's perceived level of certainty that its partner firm

will pursue mutually compatible interests in the alliance, rather than act opportunistically,”has been

regarded as a major criterion for partner selection (Das & Teng, 1998). Confidence in partner cooper-

ation especially takes on importance in technology alliances that are prone to opportunism by part-

ners, including knowledge misappropriation by a partner (Gulati & Singh, 1998; Oxley, 1997;

Pisano, 1989). Therefore, if market overlap has a bearing on firms' expectations of potential partners'

proclivities toward opportunism, it will also influence partner selection for technology cooperation.

That the prior literature has paid little attention to this possible mechanism is an important research

gap since market overlap between partners and partner opportunism have both been popular topics in

the alliance literature. In order to provide a new perspective on rivalry and partner selection, specifi-

cally for technology cooperation, we build upon and extend the previous literature on market overlap

and partner selection by joining it with the multimarket competition literature, which has investigated

competitive actions and responses between multimarket rivals (Karnani & Wernerfelt, 1985).

The multimarket competition literature has argued and shown that market overlap or multimarket

contact

1

in end-product markets between two firms reduces incentives to initiate attacks in the first

place by enabling broad retaliation across the two firms' shared markets (Bernheim & Whinston,

1990). Combining this argument with the view that opportunistic behaviors are also a kind of

1

In this article, for simplicity we will henceforth use the terms multimarket contact and market overlap interchangeably,

though the latter can exist without the former.

268 RYU ET AL.