Status Homophily in Negative Strategic Interactions

Abstract

We examine how firm status determines patent litigation and its consequences for firms. Literature on social status has demonstrated numerous benefits associated with a high-status position and that status transfers through affiliations. Taken together, high-status firms generally engage in transactions with each other rather than with low-status firms. Therefore, we argue that status homophily in firms, i.e. similarity in status, will also occur in patent litigation, i.e. a negative interaction. Consistent with status literature, we argue that uncertainty amplifies the effect of status: uncertainty from the plaintiff side negatively moderates status homophily in patent lawsuits. Research on alleged wrongdoing has demonstrated negative penalties such as decreased evaluations for firms accused of wrongdoing. Moreover, as audiences have a level of uncertainty about the wrongdoing, which the accusers’ status will likely decrease. Thus, we argue that a firm faces financial loss soon after a high-status firm files a patent infringement lawsuit against it. We find support for our hypotheses, suggesting that status homophily has negative outcomes and belonging to an elite group does not protect firms from penalties from audiences.