Rent Appropriation in Strategic Alliances: A Study of Technical Alliances in Pharmaceutical Industry

Abstract

Many existing alliance studies have investigated how embedded relations create superior value for organizations. The role of network structure in rent appropriation or pie splitting, however, has been underexplored. We propose that favorable locations in interorganizational networks provide firms with superior opportunities for appropriating more economic benefits from alliances than their partners do. Specifically, we argue that partners’ asymmetric network positions will lead to unequal brokerage positions that promote disparate levels of information gathering, monitoring, and bargaining power, which lead to differing capacities to appropriate value. This in turn results in variations in market performance. We also propose this brokerage position exacerbates existing inequalities such as commercial capital; thus, available firm resources will moderate such network effects. Evidence is presented in the form of market response to technology alliance announcements from a set of pharmaceutical firms. In general, we find that firms within central network positions and those spanning structural holes have higher returns than their partners. In addition, we show that this relationship is contingent upon available firm resources.