Publication Type

Conference Proceeding Article

Version

acceptedVersion

Publication Date

1-2023

Abstract

Incumbent companies target innovative firms with promising research and development (R&D) projects to rejuvenate their product portfolio. Such strategic alliances create value by combining the innovator’s research expertise with the partner firm’s superior marketing capability. The partner firm chooses the timing and payment terms of the strategic alliance, accounting for the innovator's budget and marketing capability, and the project portfolio's market interaction and revenue variability. The partner firm may prefer delayed alliances post R&D completion for innovator firms with high marketing capability when the innovator has sufficient budget or when market interaction is weak. Upfront alliances - prior to the R&D stage - are always preferred when the innovator’s marketing capability is low to cement the partner’s commitment to payments that incentivize innovator R&D. The partner also contracts upfront when projects exhibit strong market interaction yet the innovator is budget-constrained, as the upfront payment augments the innovator’s R&D budget. Finally, a strategic alliance may fail to form when the project portfolio has high revenue variability and low market interaction, and the innovator has low marketing capability. Interestingly, the partner’s profit does not always decrease in the innovator’s marketing capability - her outside option - and the partner may prefer an innovator with intermediate marketing capability when revenue variability is high. Furthermore, the partner’s profit weakly increases in the innovator’s R&D budget up to a threshold, yet may exhibit a discontinuous jump/drop at that threshold.

Keywords

R&D Management, Portfolio Selection, Strategic Alliance, Contract Timing

Discipline

Business Administration, Management, and Operations | Organizational Behavior and Theory

Research Areas

Operations Management

Publication

Management Science

Identifier

10.2139/ssrn.4640958

Publisher

Elsevier

City or Country

Amsterdam

Additional URL

https://doi.org/10.2139/ssrn.4640958

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