Arms race or détente? How interfirm alliance announcements change the stock market valuation of rivals

M ost prior event studies find that the announcement of a new alliance is accompanied by a positive stock market response for the partners. This result has usually been interpreted as evidence for the prevailing view that alliances are effective vehicles for partners to acquire or access new skills and thus become stronger competitors. However, partners should also earn positive abnormal returns if alliances are used to shape competitive interactions, attenuating competitive intensity industry-wide. In this study, we disentangle these different mechanisms by examining how alliance announcements affect the stock market's evaluation of allying firms' rivals: if an alliance is expected to make partner firms more competitive, this should lead to negative abnormal returns for partners' rivals; if an alliance is expected to facilitate a reduction in competitive intensity, this should lead to positive abnormal returns for rivals. Results from an event study analysis of research and development alliances in the telecommunications and electronics industries during 1996-2004 provide evidence consistent with competition attenuation in some alliances. Our research thus challenges the increasingly narrow focus on learning and resource accumulation through alliances, and calls for broader consideration of the roles and effects of collaboration, both for individual firms and for industry structure

When Do ISVs Join a Platform Ecosystem? Evidence from the Enterprise Software Industry

In the enterprise software industry leading firms usually adopt an open platform strategy and nurture their innovation ecosystem to achieve the shared success of the community. In this study we examine the antecedents of small independent software vendors’ (ISVs’) decision to join a platform ecosystem. Using data of 1208 ISVs’ history of partnering activities with a major enterprise software marker from 1996 to 2004, we find that appropriability strategies based on intellectual property rights and the possession of downstream complementary capabilities by ISVs are positively related to the partnership formation, and ISVs use the two mechanisms as substitutes to prevent expropriation by the platform owner. In addition, we show that greater level of competition in the downstream market between ISVs and the platform owner negatively affects the likelihood of partnering. The results highlight the role of innovation appropriation, downstream complementary capabilities and collaborative competition in the formation of enterprise software platform ecosystems

The interplay of competition and cooperation

Research streams on competition and cooperation are central to the field of strategic management but have evolved independently. The emerging literature on coopetition has brought attention to the phenomenon of simultaneous competition and cooperation, yet the interplay between the two has remained under-researched. We offer a roadmap for studying this interplay, which identifies some of its antecedents and consequences, highlights debates concerning the nature of competition and cooperation and the association between the two, and directs attention to the tension between competition and cooperation and the alternative approaches for managing this tension. We discuss the broader implications of the interplay, note some intriguing open questions, offer directions for future research, and present an organizing framework for the interplay of competition and cooperation

Competitive Impacts of IT Innovation: An Empirical Analysis of Software Patents in the IT Industry

We investigate the impact of a firm’s software patents on rivals’ market value using data from the US IT industries. Theoretically, there are two countervailing forces influencing the competitive impact of software patents: market-stealing and spillover. Therefore, the net impact of a firm’s software patents on rivals depends on the relative magnitude of these two forces, and is essentially an empirical question. We find that a focal firm’s software patent stock is negatively associated with its rivals’ market value. In addition, we find interesting moderating effects of two factors: hardware patent stock and competitive intensity. Our results indicate that the focal firm’s hardware patent stock amplifies the negative impact of its software patent stock on rivals’ market value. Furthermore, we find that the competitive intensity of the industry mitigates the competitive impact of software patent stock

Arms Race or Détente? How Interfirm Alliance Announcements Change the Stock Market Valuation of Rivals

Most prior event studies find that the announcement of a new alliance is accompanied by a positive stock market response for the partners. This result has usually been interpreted as evidence for the prevailing view that alliances are effective vehicles for partners to acquire or access new skills and thus become stronger competitors. However, partners should also earn positive abnormal returns if alliances are used to shape competitive interactions, attenuating competitive intensity industry-wide. In this study we disentangle these different mechanisms by examining how alliance announcements affect the stock market's evaluation of allying firms' rivals: If an alliance is expected to make partner firms more competitive, this should lead to negative abnormal returns for partners' rivals; if an alliance is expected to facilitate a reduction in competitive intensity, this should lead to positive abnormal returns for rivals. Results from an event study analysis of R&D alliances in the telecommunications and electronics industries during 1996-2004 provide evidence consistent with competition attenuation in some alliances. Our research thus challenges the increasingly narrow focus on learning and resource accumulation through alliances, and calls for broader consideration of the roles and effects of collaboration, both for individual firms and for industry structure

Filling in roadmap gaps in the semiconductor industry

Complex technologies are often developed in inter-organisational networks as actors try to reduce development costs and uncertainty about the viability of these innovations. However, as of to date it remains unclear how such innovations are financed collectively under conditions characterised by extreme uncertainty. Hence we explore how financial resources within innovation networks are mobilised and allocated. This question is of particular importance to the development of system technologies that are viable only if all critical components are functional on time. We explore this issue by reviewing the development of a radically new system technology for mass manufacturing microchips in the semiconductor industry. In this industry, technological roadmaps allow actors to identify critical components that still need to be developed. These components are the so-called roadmap gaps. However, suppliers can be reluctant to develop the required components at their own expense because of the high uncertainties involved. In such cases, providing financial support to component suppliers is a central task of innovation networks. The empirical analysis shows that semiconductor manufacturers take both an individual and a collective approach to filling roadmap gaps. This study contributes to prior research on innovation networks and financial management not only by identifying and clarifying these two approaches, but also by revealing under which conditions they are used. The findings are particularly relevant to scholars interested in the innovations of complex product systems (CoPS)

Walking the Tightrope: Coopetition Capability Construct and Its Role in Value Creation

Prior research emphasizes the paradoxical nature of coopetition and the need for specialized capabilities—coopetition capability—to deal effectively with opportunities and challenges stemming from the simultaneous pursuit of cooperation and competition and to create superior value. However, we know little about the underlying conceptual properties of coopetition capability (construct clarity) and lack a reliable and valid scale to measure it (construct validity). We conduct a study in three phases to address this critical gap. First, building on paradox literature, we conceptualize coopetition capability as a multidimensional construct reflected by three underlying dimensions: coopetition mindset, analytical acumen, and executional skills. Second, we develop a 15-item psychometrically valid scale using a sample of 647 coopetitive alliances in high-technology sectors. Finally, using a matched sample of 536 coopetitive alliances, we extend the focal construct's nomological network by examining two relationships: coopetition experience's impact on coopetition capability and the effect of coopetition capability on the relationship between the coopetition paradox and value creation. Overall, our paper lays a foundation for deeper theory development and empirical research on coopetition by providing much-needed construct clarity and psychometrically valid measures for coopetition capability

Three Essays on Investor Reaction to Strategic Alliance Announcements

ABSTRACT ESSAY 1 RAPID OVER-REACTION: PERCEIVED VALUE CREATION VIA ALLIANCE ANNOUNCEMENTS The management literature has widely acknowledged the importance of studying and understanding the determinants of the market\u27s reactions to the announcements of strategic alliances. With a focus on dyadic alliances, I ask what types of information signaled to the market by the alliance announcement influence the investors\u27 perception of value. I hypothesize that the type of technical expertise, relationship expertise, and market expertise of each alliance partner, expressed as either explorative or exploitative, sends decodable signals to the investors, which in turn influences their reaction to the new alliance announcement. Using a sample of 927 alliances extracted from a unique biopharmaceutical dataset, I proxied investors\u27 reaction to the alliance announcements by calculating the cumulative abnormal return during a three-day window around the alliance announcement. I found that while technical expertise does not appear to be a signal that investors consider when valuing firms involved in a new alliance, both relationship expertise and market expertise showed a statistically significant influence on the investors\u27 perception of value. ABSTRACT ESSAY 2: REDUCING INVESTOR ANXIETY VIA ALLIANCE PARTNER SELECTION The management literature has recognized strategic alliances as an organizational form that has the potential to reduce uncertainty. One important step for alliances in order to achieve a reduction in uncertainty is selecting the right partner, one that enables the alliance to effectively address the specific type of uncertainty it faces. In this study, I specifically address the question of whether the perceived uncertainty of investors at the time of the alliance announcement is influenced by whether the skills and expertise of the two alliance partners are similar or complementary (diverse). I suggest that the level of technical expertise, expressed as either explorative or exploitative and interpreted as either similar or complementary, sends a signal to the investors, which in turn will impact their perception of uncertainty. In addition, I study whether this relationship is moderated by the level of exogenous uncertainty faced by the alliance. Using a sample of 927 alliances extracted from a unique biopharmaceutical dataset, I found that exogenous uncertainty in fact moderates the relationship between partner similarity/ complementarity and investors\u27 perception of uncertainty. ABSTRACT ESSAY 3: SPILLOVER EFFECTS IN ALLIANCE RELATIONSHIPS Entering multiple simultaneous alliances is a common practice, especially in R&D intense industries. While this strategy may enhance the possibility of success by attempting to simultaneously unlock possible synergistic effects in multiple alliances, it also exposes the alliance partners to spillover effects created by their partners\u27 alliances. In this study I will examine how one specific action of one partner, to enter a new alliance, affects the initial alliance partner. Specifically, given that firm A and firm B are in an existing alliance, how will the market react to the information that firm A has entered into a new alliance with firm C, and how will the market reaction affect firm B (the initial alliance partner)? I develop and test two sets of competing hypotheses using a unique biopharmaceutical dataset and find that the market reacts favorably to the new alliance as measured by the change in value of firm B\u27s stock price. My goal is to contribute to the literature by testing how the signals sent by the alliance to the market affect the initial alliance partner and thus if investors monitor and react to post-alliance events