Open Innovation and R&D alliances: The double-edge sword of technological breadth

This paper studies opportunism in biopharma R&D alliances by highlighting the role of each partner’s technological breadth in the dynamics that determine the size of the alliances. We posit that, on one hand, the breadth of technological resources of the upstream R&D partner (typically a dedicated biotechnology firm) enables it to divert resources from the alliance to unrelated projects at the expense of the downstream financing partner (typically a “Big Pharma” company). On the other hand, the breadth of technological resources of this downstream partner enables it to better monitor the opportunistic behavior of its R&D partner. Thus, we hypothesize that the R&D partners with broad technological knowledge are more likely to be at a disadvantage and may end up receiving smaller amounts upfront in the alliance, while the downstream partners with broad technological knowledge are more likely to pay larger amounts upfront. Furthermore, we hypothesize that partner familiarity strengthens (weakens) the positive (negative) relationship between downstream partner’s (R&D partner’s) technological breadth and the size of the alliance. We test these hypotheses in a sample of 178 R&D alliances formed between 2006 and 2015. We find the main effects of technological breadth are significant for both the R&D and downstream partners. However, with respect to the moderation effects, familiarity between partners only weakens the negative impact of technological breadth of the R&D partner but does not significantly strengthen the positive impact of technological breadth of the downstream firm. We discuss the implications of our findings for theory and practice.