Alliance Experience and Accommodation in the Choice of Alliance Governance Structure

Much of the alliance literature assumes, often implicitly, the firms with power will apply that power to structure alliance terms to their benefit. Drawing on the transaction value literature, we propose that firms with greater alliance experience often choose not to apply that experience to shape alliance structure to their advantage. Rather, they accept a governance structure more relevant to their partner’s concerns, relying on their capabilities to address their governance concerns even under the partner’s preferred structure. Consistent with profit-maximization, such accommodation creates transaction value within the alliance by addressing both firm’s concerns. Evidence from the biotechnology and pharmaceutical industries supports our hypotheses. Contrary to long-standing assumptions, we find the strongest evidence for accommodation when there is asymmetry of experience. In addition to documenting the existence of accommodation, we show that need to question the assumption that powerful firms will always apply their power to enforce their preferences. We also establish alliance experience as a boundary condition for accommodation. More broadly, our result demonstrate the value of considering the (possibly conflicting) concerns and preferences of all partners in the alliance, as governance choices derive from the interaction of each firm’s efforts to create and claim value within the relationship.