# 2008 - 022 If the Alliance Fits . . . : Innovation and Network Dynamics

Network formation is often said to be driven by social capital considerations. A typical pattern observed in the empirical data on strategic alliances is that of small world networks: dense subgroups of firms interconnected by (few) clique-spanning ties. The typical argument is that there is social capital value both to being embedded in a dense cluster, and to bridging disconnected clusters. In this paper we develop and analyze a simple model of joint innovation where we are able to reproduce these features, based solely on the assumption that successful partnering demands some intermediate amount of similarity between the partners. This paper will appear in J.A.C. Baum and T.J Rowley (eds.), Network Strategy: Advances in Strategic Management, 25. Oxford UK: JAI/Elsevier, 2008. ∗We gratefully acknowledge comments from Terry Amburgey, Joel Baum, Ronald Burt, Tim Rowley, Gordon Walker and other participants to the Network Strategy Conference held in Toronto, May 2007. We acknowledge support from the European FP6-NEST-Adventure Programme, contract n 028875, Network Models, Governance and R&D collaboration networks (NEMO). Corresponding author: [email protected]