Physical distance vs. clustering as influences on contracting complexity for biopharmaceutical alliances

We examine whether the presence of alliance firms in the same regional cluster or in close physical proximity influences contracting behaviour of biopharmaceutical companies by enhancing coordination and mitigating the need for control. The literature addressing geographical proximity and alliance contracting fails to make a clear distinction between physical co-location and co-location within a cluster, although the two attributes are conceptually distinct. We find that geographic proximity is not related to contracting behaviour. The impact of co-location within a cluster is more nuanced. Specifically, we find that co-location in the San Francisco Bay Area cluster is associated with less complex contracting; however, co-location in other biotechnology clusters does not seem to be related to contracting behaviour. We believe that the informal business environment characterising the Bay Area cluster, as well as unique roles played by venture capital and law firms located in the Bay Area account for the distinct result.