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Published by: Allied Business Academies
Originally published in: "Academy of Strategic Management Journal", 2014
Length: 21 pages

Abstract

I examine sources of bargaining power in the form of complementary resource possession. I postulate that relative value of the resources held by the firms involved an alliance predicts the level of payments promised by funding firms (firms which provide money to develop prospective products) to the early stage technology ventures (young firms which uncover the new technology to be developed into a commercializable product). On the one hand, innovative ideas are potentially valuable resources for an early stage technology venture. Thus, a more valuable innovative idea should generate larger promised remuneration for early stage technology firms upon signing an alliance agreement. However, established firms hold valuable resources of its own and one would expect established firms to leverage those resouces in such a way as to minimize the amount of money it is willing to payout as part of the alliance contract. I examine the effects these two countervailing forces have on money promised to the early stage technology venture by the funding firm. Specifically, I believe the funding firm's various complementary resources negatively moderate the relationship between the value of the early stage venture's innovative idea and the remuneration promised the early stage venture in a collaborative agreement. I use a sample of biotech firms forming alliances with established pharmaceutical companies to test our hypotheses, and I find, as predicted, the value of the new venture's innovative ideas tends to increase the amount of money in the alliance contract. I also find support for my contention that the strength of the funding firm's complementary resources negatively moderates this relationship such that less money is offered the early stage venture when the funding firm holds more valuable complementary resources.

About

Abstract

I examine sources of bargaining power in the form of complementary resource possession. I postulate that relative value of the resources held by the firms involved an alliance predicts the level of payments promised by funding firms (firms which provide money to develop prospective products) to the early stage technology ventures (young firms which uncover the new technology to be developed into a commercializable product). On the one hand, innovative ideas are potentially valuable resources for an early stage technology venture. Thus, a more valuable innovative idea should generate larger promised remuneration for early stage technology firms upon signing an alliance agreement. However, established firms hold valuable resources of its own and one would expect established firms to leverage those resouces in such a way as to minimize the amount of money it is willing to payout as part of the alliance contract. I examine the effects these two countervailing forces have on money promised to the early stage technology venture by the funding firm. Specifically, I believe the funding firm's various complementary resources negatively moderate the relationship between the value of the early stage venture's innovative idea and the remuneration promised the early stage venture in a collaborative agreement. I use a sample of biotech firms forming alliances with established pharmaceutical companies to test our hypotheses, and I find, as predicted, the value of the new venture's innovative ideas tends to increase the amount of money in the alliance contract. I also find support for my contention that the strength of the funding firm's complementary resources negatively moderates this relationship such that less money is offered the early stage venture when the funding firm holds more valuable complementary resources.

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