Network Externalities and Firm Innovation

Exequiel Hernandez and Jason Lee, Management, The Wharton School

Abstract: We propose a novel theory of network externalities to explore the causal relationship between a firm’s position in an alliance network and its innovation outcomes. We posit that the network position a focal firm occupies can be unexpectedly and suddenly reshaped by the acquisitions of other firms. This causes an exogenous change in the structure of the focal firm’ss network, which may then causally impact (positively or negatively) its innovation. We also explore whether acquirers intentionally undermine the innovation of their rivals by causing negative externalities on rivals’ networks.

Michelle Eckert is Marketing and Communications Coordinator for the Mack Institute, where she works to engage students, researchers, and corporate partners in opportunities for collaboration. Michelle received her B.A. in Art from Valparaiso University in 2007. Her background includes two AmeriCorps terms of service working to teach mathematics, computer literacy, and job readiness skills to out-of-school youth in Philadelphia, focusing particularly on promoting access to post-secondary education.