Complementors' Decision on Partnership Retention

Abstract

Network externality theory highlights that complementors consider market dynamics and network effects exhibiting flexibility in their partnership decisions. But, path dependence theory emphasizes that complementors may not readily adapt to the emerging technologies and exhibit inertia in technology development, demonstrating rigidity in their partner choices on account of technological lock-in. Though prior studies on organizational behavior under network externality have adopted the two theories, they have not directly addressed the contrasting factors that can influence the inter-firm relationships. This study aims to empirically investigate and attempt to reconcile these two theoretical explanations in the context of complementors' partnership decisions. Survey data as well as in-depth interview data are collected from the chief-level executives of complementor SMEs in software industries. The results show that while network size of partner's technologies positively influences partnership retention intention, complementors' technological lock-in positively moderates the relationship between network size and partnership retention intention. Technological uncertainty of partner's products/technologies negatively moderates the relationship among network size, technological lock-in, and partnership retention intention. Interestingly, complementors' technological compatibility negatively influences partnership retention intention for SMEs with high technological lock-in and low technological uncertainty. The implications of the results are discussed in depth.