Knowledge dissimilarity, bargaining power, and smaller firms’ ability to negotiate a favorable alliance contract

Abstract This paper investigates how partners in asymmetric R&D alliances contractually contend with the problems that arise when their knowledge sets are dissimilar. This paper also examines the sources of bargaining power that smaller firms leverage in negotiations with larger partners to gain concessions on specific terms. Using a sample of 136 alliances formed to develop new medical devices, we find that facilities access and non-solicitation clauses are included in the contract when the partners’ knowledge sets are dissimilar. We also find that smaller firms selectively use their bargaining power to win concessions related to the use of these terms.