Emergence of Innovation Networks from R&D Cooperation with Endogenous Absorptive Capacity

Abstract

This paper extends the existing literature on strategic R&D alliances by presenting a model of innovation networks with endogenous absorptive capacity. The networks emerge as a result of bilateral cooperation over time between firms occupying different locations in the knowledge space. Social capital is ignored, and firms ally purely on the basis of knowledge considerations. Partner selection is driven largely by absorptive capacity which is itself influenced by cognitive distance and investment allocation between inventive and absorptive R&D. Cognitive distance between firms changes as a function of the intensity of cooperation and innovation. Within different knowledge regimes, we examine the structure of networks that emerge and how firms perform within such networks. Our model replicates some stylised empirical results on network structure and the contingent effects of network position on innovative performance. We find networks that exhibit small world properties which are generally robust to changes in the knowledge regime. Second, subject to the extent of knowledge spillovers, certain network strategies such as occupying brokerage positions or maximising accessibility to potential partners pay off. Third and most importantly, absorptive capacity plays an important role in network evolution: firms with different network strategies indeed differ in the build-up of absorptive capacity.