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Firm Scope Experience, Historic Multimarket Contact with Partners, Centrality, and the Relationship Between Structural Holes and Performance

INSEAD, Boulevard de Constance, 77305 Fontainebleau, France
shipilov{at}insead.edu

This study investigates characteristics that affect the relationship between firms' positions in a network of collaborative ties with other firms and their performance. Firms located in similarly structured networks rich in structural holes may obtain different performance results depending on their (1) capacity to absorb heterogeneous information, (2) ability to protect against partner noncooperation, and (3) bargaining power. In this paper, I argue that firms with a wide scope of experience have superior absorptive capacity for dealing with heterogeneous information; hence, such firms will be able to extract performance improvements from network positions rich in structural holes. Furthermore, firms with a high level of historic multimarket contact (MMC) with their partners are able to reduce the risks of partner noncooperation, hence augmenting their performance compared to firms in open networks that do not enjoy MMC with their own partners. Finally, firms of low centrality in the industry's network of alliances will extract performance benefits from enhancing bargaining power as a result of exploiting brokerage opportunities in open networks. These arguments are corroborated in a study of relationships formed among investment banks' advising on the merger and acquisition transactions in the United Kingdom between 1992 and 2001.

Key Words: interfirm networks; firm performance; structural holes; investment banking