Effects of Multimarket Contact on the Governance of R&D Alliances

We investigate how competitive relationships between R&D alliance partners in high-technology industries affect their alliance governance choices. The alliance literature has interpreted direct competition in end-product markets between alliance partners as a factor aggravating contractual hazards by increasing the private benefits from opportunism. However, drawing on the multimarket competition literature, we claim that multimarket contact can generate mutual forbearance from opportunism and thereby reduce the need for hierarchical governance structures. Furthermore, firms compete not only in end-product markets, but also in factor markets. They are also embedded in cooperative interfirm relationships as well as in competitive ones. Therefore, we also investigate how these different types of interfirm relationships outside an R&D alliance condition the effect of multimarket contact on alliance governance choice. Specifically, we maintain that while the substituting effect of multimarket contact for hierarchical governance structures is intensified when the alliance partners also have technology overlap-the most important factor in high-technology industries-, it is weakened when they have prior cooperative history. Our arguments are supported by empirical findings from a sample of R&D alliances in the biopharmaceutical industry.