TECHNOLOGY ACQUISITION AND THE CHOICE OF GOVERNANCE BY ESTABLISHED FIRMS: INSIGHTS FROM OPTION THEORY IN

This paper examines the governance decisions of established firms seeking technological know-how. Option theory is used to supplement the traditional transaction cost approach. Empirical results from a multinomial logit model indicate that the combined transaction cost and option theory model provides a richer description of governance choice. Technological change that weakens or destroys established firms ' advantages in research and development (R&D) and production may have little effect on their relative advantage in distribution and marketing. This situation creates opportunities for cooperation, rather than competition, between established firms and smaller, more innovative firms having technical expertise, bu