Cooperation can benefit and hurt firms at the same time. An important question then is: when is it better to cooperate? And, once the decision to cooperate is made, how can an appropriate partner be selected? In this paper we present a model of inter-firm cooperation driven by cognitive distance, appropriability conditions and external knowledge. Absorptive capacity of firms develops as an outcome of the interaction between absorptive R&D and cognitive distance from voluntary and involuntary knowledge spillovers. Thus, we offer a revision of the original model by Cohen and Levinthal (Econ J 99(397):569–596, 1989), accounting for recent empirical findings and explicitly modeling absorptive capacity within the framework of interactive learning. We apply that to the analysis of firms’ cooperation and R&D investment preferences. The results show that cognitive distance and appropriability conditions between a firm and its cooperation partner have an ambiguous effect on the profit generated by the firm. Thus, a firm chooses to cooperate and selects a partner conditional on the investments in absorptive capacity it is willing to make to solve the understandability/novelty trade-off.
CITATION STYLE
Egbetokun, A., & Savin, I. (2015). Absorptive Capacity and Innovation: When Is It Better to Cooperate? In Economic Complexity and Evolution (pp. 373–399). Springer Science and Business Media Deutschland GmbH. https://doi.org/10.1007/978-3-319-13299-0_16
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