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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?
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?
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?
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?
What is the concept that refers to a firm's ability to adapt and change in response to a changing environment?
What is the term for the strategy of cooperating with other firms to achieve a common goal?
What is the term for the strategy of cooperating with other firms to achieve a common goal?
What is the concept that refers to the ability of a firm to earn profits from its innovative activities?
What is the concept that refers to the ability of a firm to earn profits from its innovative activities?
What type of system do biotechnology companies orchestrate for new product development?
What type of system do biotechnology companies orchestrate for new product development?
What do biotechnology firms reach out to for basic knowledge in their new product development process?
What do biotechnology firms reach out to for basic knowledge in their new product development process?
What happens to the product development process as biotechnology companies accrue more resources?
What happens to the product development process as biotechnology companies accrue more resources?
What is the negative moderating effect of on the product development system?
What is the negative moderating effect of on the product development system?
What did Rothaermel and Boeker (2008) study in their research?
What did Rothaermel and Boeker (2008) study in their research?
What is a characteristic of the biotechnology companies that are more likely to enter into an alliance with a pharmaceutical company?
What is a characteristic of the biotechnology companies that are more likely to enter into an alliance with a pharmaceutical company?
What is a result of the integration of downstream processes by biotechnology companies?
What is a result of the integration of downstream processes by biotechnology companies?
What is the likely impact of the new product development process on the biotechnology industry?
What is the likely impact of the new product development process on the biotechnology industry?
What does a strong appropriability regime imply for an innovator?
What does a strong appropriability regime imply for an innovator?
What is the primary benefit of pursuing a forward vertical integration strategy for an innovator?
What is the primary benefit of pursuing a forward vertical integration strategy for an innovator?
Under what condition can an innovator build a sustained competitive advantage?
Under what condition can an innovator build a sustained competitive advantage?
What defines a joint venture as opposed to an alliance?
What defines a joint venture as opposed to an alliance?
Which of the following best describes the nature of non-equity alliances?
Which of the following best describes the nature of non-equity alliances?
What is a common characteristic of alliances in the pharmaceutical industry?
What is a common characteristic of alliances in the pharmaceutical industry?
What is the main purpose of establishing barriers to imitation?
What is the main purpose of establishing barriers to imitation?
Which statement is true regarding the frequency of non-equity alliances compared to joint ventures?
Which statement is true regarding the frequency of non-equity alliances compared to joint ventures?
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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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