A review of Ryu, W., Reuer, J. J., & Brush, T. H. (2020). The effects of multimarket contact on partner selection for technology cooperation. Strategic Management Journal, 41(2), 267-289.
I. Research question and its importance
Drawing on alliance literature, this paper investigates how multimarket contact between prospective partners affects their partner selection for technology cooperation. This research question is important for several reasons. First, since strategic alliance has become prevalent, the selection of partner plays a decisive role in the success of the partnership. However, most of the partnerships failed within short time after alliance formation, pointing to the scant understanding about how to select a partner. This paper addresses the question by assessing the role of multimarket contact. Second, existing theories pertain to alliance posit conflicting views of multimarket contact as a determinant of partner selection, namely the market power‐based vs. resource‐based perspectives. This paper attempts to reconcile this literature gap. Finally, since most of the alliances documented were concentrated in high technology sector, it’s therefore reasonable to conduct the research in this empirical setting.
II. Method, finding, and limitation
The authors focus on the global top 200 biopharmaceutical companies. Instrumental variable method was employed along with regression models to address endogeneity as well as omitted variable concerns. In brief, they show firms are more likely to choose each other for technology cooperation as they share more product markets. Furthermore, this correlation is stronger when their important markets are different. The counter‐intuitive argument that market overlap enables firms to broadly retaliate against each other across common product markets receives empirical support.
III. Future research
Similar patterns exist in industries other than high technology. For instance, in air and freight transportation where major carriers compete in multiple markets, alliance is formed to prevent price-cutting retaliation. In the same manner, business schools which generally target at similar applicant characteristics in different geographic markets form alliance through dual degree and joint program, in order to prevent competition over scholarship opportunities or excess commitment of program differentiation. A more observable scene is in congress where political parties that usually compete for ballots during national election, are strategically partnering with each other in exchange for congressional support (e.g., deliberately absence or abstain from votes). These partnerships work because both parties have the power to retaliate against each other across several markets. However, most of the aforementioned examples involve dyad level partnerships at their cores (e.g., British Airways and Cathay Pacific form OneWorld, or AsiaMiles. Both carriers operate intensive Europe-to-Asia flight networks; while British Airways does not join StarAlliance that was initiated by United Air, a U.S. airliner operating in different market compared to BA). It’s therefore more interesting to investigate if mutual forbearance also applies for and sustains in, say, triad or other structures. The Arab–Israeli war in 1967 where three Arabic countries with substantially more forces (but were hesitating in initiating war) lose to Israel demonstrates the potential pitfall of mutual forbearance in a triad.