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Sleeping with competitors: the impact of NPD phases on stock market reactions to horizontal collaboration

Abstract

Firms are increasingly collaborating with their competitors for new product development (NPD), yet the literature is almost silent on stock market reactions to these horizontal collaborations. Given the different skills and activities needed in each NPD phase, we analyze the differential stock market reactions to horizontal collaborations in the initiation, development, and commercialization phases of NPD. Analyses of a unique and comprehensive dataset with 831 NPD announcements of horizontal collaborations over 12 years reveal that, on average, the stock market reacts favorably to NPD-related horizontal collaboration in the initiation phase, but unfavorably in the development and commercialization phases. Further, these effects are asymmetrically moderated by the innovativeness of the new product and the collaborating competitor’s relative market and technological powers. Overall, our results highlight that failing to examine the specific NPD phase leads to an incomplete understanding of stock market reactions to horizontal collaboration for NPD. We offer theoretical and managerial implications regarding horizontal collaboration for each NPD phase, along with the relevant NPD project and competitor contingencies.

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Notes

  1. We use the terms “horizontal collaboration,” “horizontal alliance,” and “competitor collaboration” interchangeably throughout the paper. We use the terms “alliance” and “collaboration” interchangeably since the literature reveals few differences between them.

  2. Our investigation focuses on the stock market returns to a firm that collaborates with a competitor during the NPD process since the product has yet to produce sales during the NPD process.

  3. As an additional check on this assumption, we examined differences of stock market abnormal returns due to announcements, interviews, or reports, and no significant difference is found. Press reports of publicly-traded firm events without firm confirmation often use words such as may, guess, conjecture, and speculate; these reports are usually labeled as “rumor.” To ensure accuracy of the announcements, we did not include these reports in our sample.

  4. If there is more than one collaborating competitor, we compare the mean of the collaborating firms’ sales revenues with that of the focal firm. This method is also employed for the competitor’s relative technological power.

  5. When the difference in patent stock is less than 5% of the focal firm’s patents, we compared means of the patents over the past five years. This method is also employed for the competitor’s relative market power.

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Acknowledgments

We thank the support from research grants of National Natural Science Foundation of China (NSFC, project No. 71072060). We also acknowledge the insightful feedback from Aric Rindfleisch, Eric Fang, Barry Bayus, and Alina Sorescu. One of the authors (Aspara) is grateful for related research grants from Nasdaq OMX Nordic Foundation and Finnish Funding Agency for Technology and Innovation.

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Correspondence to Qingsheng Wu.

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Wu, Q., Luo, X., Slotegraaf, R.J. et al. Sleeping with competitors: the impact of NPD phases on stock market reactions to horizontal collaboration. J. of the Acad. Mark. Sci. 43, 490–511 (2015). https://doi.org/10.1007/s11747-014-0396-3

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Keywords

  • Horizontal collaboration
  • Investors
  • Stock market reactions
  • New product development (NPD)
  • Emerging markets