Partnerships between Software Firms: Is There Value from Complementarities?

In network-type industries companies can explore the existence of complementarities in different ways to create value and competitive advantage. Gao and Iyer (2006) introduce a new methodology, based on the software stack, and show that there is value in mergers and acquisitions between companies that produce complementary components of network systems. We apply the same methodology to a sample of Alliances and find that even though there is value in Alliances between companies that produce in adjacent layers of the stack, abnormal returns are higher when both participants produce on the same layer of the stack.