Geographic Co-location of Partners and Rivals: Implications for the Design of R&D Alliances

Abstract

This study advances previous research on the competitive aspects of research and development (R&D) collaborations that has been mainly interested in knowledge protection concerns in alliances between direct rivals. We join the alliance and agglomeration literatures and argue that geographic co-location between a focal firm’s partner and rivals introduces potential indirect paths of knowledge leakage to rivals. Geographic co-location creates significant risks of unintentional knowledge spillovers to rivals, while it also increases the likelihood of transactions between the partner firm and the rivals in which firm knowledge can be misappropriated. As a consequence of these risks associated with the co-location of partners and rivals, the focal firm is more likely to employ defense mechanisms when designing alliances. In particular, the focal firm will use equity structures to provide greater monitoring, control, and incentive alignment and will reduce the alliance’s scope, as well as task interdependence, to address knowledge leakage concerns.