Multimarket contact between partners and strategic alliance survival

Abstract

Research Summary: The impact of multimarket contact (MMC) between partners on strategic alliance survival is unclear, even though recent studies have suggested that MMC increases the likelihood of alliance formation. Our study investigates this issue by integrating two mechanisms occurring between multimarket firms: mutual forbearance and technological resource imitation. We argue that MMC between partners deters opportunism in alliances via mutual forbearance, resulting in a positive effect on the likelihood of strategic alliance survival. We also suggest that the positive effect is weakened in two settings with higher risks of technological resource imitation: technological overlap between partners and the presence of R&D activities in an alliance. Evidence from strategic alliances in the global semiconductor industry supports these conclusions. Managerial Summary: Recent research has shown that firms encountering each other in multiple markets are more likely to form strategic alliances, but it is unclear whether these firms are likely to stick together. Our theory suggests that the threat of broad retaliation limits opportunism and increases the likelihood of alliance survival when partners encounter each other in multiple markets. Nonetheless, in settings where partners have similar technologies, or in alliances involving R&D activities, their ability and incentives to copy each other's technological resources offsets the positive effect of multimarket contact on alliance survival. We study strategic alliances in the global semiconductor industry and find evidence consistent with these arguments.