The Organization of Innovation: Theory and Evidence from the Pharmaceutical Industry

Thomas Jungbauer (Cornell University)
Sean Nicholson (Cornell University)
June Pan (VISA)
Michael Waldman (Cornell University)

Abstract : A firm that develops a new product potentially cannibalizes sales of existing products in the firm's product portfolio, where such cannibalization is more costly the more profitable are sales of the cannibalized products. Thus, if the firm is currently producing a product for which its market power is substantial, it will want to control the research and development process in order to limit cannibalization. In this paper, we explore how this basic logic affects the organization of investments in research and development. We first build and analyze a theoretical model of the research and development process in which conducting R&D in-house provides the firm more control over the new product's location in product space. We then explore the model's testable predictions using data from the pharmaceutical industry concerning patents, patent expiration, and decisions concerning whether various stages of the research and development process are conducted in-house or outsourced. Our empirical findings support the model's testable predictions.

Roles in Franchising: Agency and Stakeholder Theory Perspectives

Aveed Raha (University of Vienna)
Ilir Hajdini (University of Vienna)

Abstract : Although the causes of conflict in networks and interorganizational relationships have long been investigated, scholars have overlooked the importance of stakeholders with multiple roles in eliciting managerial (mis)perceptions and potential for conflict. We find that franchisees take on multiple stakeholder roles, as customers, employees, investors, and business partners. Drawing from agency and stakeholder theories, we empirically demonstrate that the franchisor’s perception of franchisees’ multiple stakeholder roles affects managerial support and conflict outcomes in franchisor-franchisee relationships. The primary data support our claims that when franchisees are viewed as investors and business partners, franchisors increase the level of support offered and franchise systems experience less conflict.

Revisiting Economic Action and Social Structure: the Role of Embeddedness in the Age of Amazon

Hagay C. Volvovsky (MIT Sloan School of Management)

Abstract : Network scholars posit that networks provide reputational enforcement superior to market reputation (i.e. the reputation that would emerge from a sample of market participants). In this view, reputational signals are local to social network neighborhoods: they are stronger in the presence of shared 3rd parties and decay with network distance, as a result of two mechanisms: (1) it is costly to identify and communicate with socially distant others; (2) there is little reason to trust them. Consequentially, reputational sanctions and norm enforcement are also local to the network. The rise of reputational aggregation platforms (RAP) such as Amazon and eBay calls these mechanisms into question. This paper identifies an additional mechanism driving network-based reputational enforcement, that places a boundary condition on both network and market reputation-based reputational enforcement. It argues that the informativeness of a reputational signal from A to B about C is increasing in B’s belief that A used the same norms B would in making her evaluation of C. The closer A’s norms are to B’s, the more informative the signal. Though some exchanges rely on widely shared norms, many exchanges rely on locally shared understandings between exchange partners. While such norms can and do differ across actors, thereby diluting the informativeness of reputational signals, there are good reasons to believe that norms, and thus reputations and reputational enforcement are local to social network neighborhoods. The more local the norms, the more local the reputation and the less informative is market reputation (and thus, RAPs). The more universal the norms, the more informative is market reputation, and the greater the ability of RAPs to enforce norms.