Business Strategy and Innovation

Questions and Answers

What is a key concept that refers to the ability of a firm to profit from its innovation and prevent others from duplicating it?

Appropriability regime (correct)

Competitive advantage

Dynamic capabilities

Monopoly rents

What is the term for the extra profit a firm earns due to its monopoly power?

Monopoly rents (correct)

Rent-seeking behavior

Competitive advantage

Appropriability regime

What is the primary purpose of forming alliances and joint ventures?

To reduce costs and improve efficiency

To increase monopoly power

To gain a competitive advantage (correct)

To explore new markets and geographies

What is the concept that refers to a firm's ability to adapt and change in response to a changing environment?

Dynamic capabilities Signup and view all the answers

What is the term for the strategy of cooperating with other firms to achieve a common goal?

Cooperative strategy Signup and view all the answers

What is the concept that refers to the ability of a firm to earn profits from its innovative activities?

Appropriability regime Signup and view all the answers

What type of system do biotechnology companies orchestrate for new product development?

Alliance system Signup and view all the answers

What do biotechnology firms reach out to for basic knowledge in their new product development process?

Universities Signup and view all the answers

What happens to the product development process as biotechnology companies accrue more resources?

They withdraw from the integrated product development process Signup and view all the answers

What is the negative moderating effect of on the product development system?

Firm size Signup and view all the answers

What did Rothaermel and Boeker (2008) study in their research?

Over 32,000 dyads between pharmaceutical and biotechnology companies Signup and view all the answers

What is a characteristic of the biotechnology companies that are more likely to enter into an alliance with a pharmaceutical company?

Younger age Signup and view all the answers

What is a result of the integration of downstream processes by biotechnology companies?

Fewer cooperative arrangements with pharmaceutical companies Signup and view all the answers

What is the likely impact of the new product development process on the biotechnology industry?

Increased innovation and changed competitive dynamics Signup and view all the answers

What does a strong appropriability regime imply for an innovator?

Imitation is unlikely due to effective protection. Signup and view all the answers

What is the primary benefit of pursuing a forward vertical integration strategy for an innovator?

To extract monopoly rents from the innovation. Signup and view all the answers

Under what condition can an innovator build a sustained competitive advantage?

When there are few capable competitors. Signup and view all the answers

What defines a joint venture as opposed to an alliance?

A joint venture involves forming a new entity. Signup and view all the answers

Which of the following best describes the nature of non-equity alliances?

They involve sharing resources but don’t create a new entity. Signup and view all the answers

What is a common characteristic of alliances in the pharmaceutical industry?

They foster intensive cooperation among firms. Signup and view all the answers

What is the main purpose of establishing barriers to imitation?

To protect innovation and sustain profits. Signup and view all the answers

Which statement is true regarding the frequency of non-equity alliances compared to joint ventures?

Non-equity alliances are much more frequent than joint ventures. Signup and view all the answers

Study Notes

Vertical Integration Strategy

Innovators should consider going it alone and pursue a forward vertical integration strategy when barriers to imitation are high and the number of capable competitors is low.
This allows the innovator to leverage complementary assets and extract monopoly rents from the innovation.
Barriers to imitation will delay entry, and the innovator may be able to build a sustained competitive advantage.

Joint Development with Complementary Assets

If the innovator lacks complementary assets, they may profit from the innovation by developing it jointly with the holder of those assets through an alliance or joint venture.
Barriers to imitation must remain high, and the number of capable competitors should not be too large.
Alliances are contractual agreements between two independent parties, while joint ventures are newly established third entities.
Joint ventures are equity-based, whereas alliances are non-equity, contract-based.

Industry Example: Pharmaceutical and Biotechnology

The pharmaceutical industry has seen intensive inter-firm cooperation based on alliances and joint ventures, particularly after the emergence of biotechnology.
Biotechnology companies initially formed alliances with large pharmaceutical companies to commercialize new drugs, but more recently, they have integrated downstream.
Rothaermel and Deeds (2004) documented a new product development process based on an alliance system orchestrated by biotechnology companies.
Biotechnology firms reach upstream to universities for basic knowledge and downstream to pharmaceutical companies to commercialize their innovations.

Complementary Assets and Firm Performance

The effect of complementary assets on firm performance is likely to change over time.
Rothaermel and Boeker (2008) found that pharmaceutical companies and biotechnology firms are more likely to enter into an alliance based on complementarities when the biotechnology firm is younger.

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Description

This quiz covers the ideal strategy for an inventor to maximize profits from an innovation, considering barriers to imitation and competition. It discusses the benefits of forward vertical integration and leveraging complementary assets to extract monopoly rents.