Efficient partner search: Embedded firms seeking co‐operative partners

Abstract

This article analyses firms’ efforts to find a suitable partner for a technology cooperation. Although more theoretical studies acknowledge that search costs are an essential part of transaction costs, empirical research on interfirm co‐operation neglects searching. This paper explicitly addresses this lacuna. Hypotheses on the search behavior of firms are derived by applying considerations of transaction cost economics and arguments concerning the social embeddedness of firms to a search model widely used in economics. It is argued that on the one hand the problem potential of co‐operation, which is determined by the co‐operation's volume and the involved relation‐specific investments and uncertainty, affects the benefits a firm can gain from searching. On the other hand, the social embeddedness of a firm influences the costs of searching. Further, I consider the size and homogeneity of the pool of potential partners in the analysis. The derived hypotheses are tested on a dataset of 94 technology cooperations within five Dutch multinationals. The results clearly show that transaction cost economics does explain the search efforts of firms. In addition, I find evidence that the social embeddedness also affects searching.