Asymmetric Alliances in the Thoroughbred Horse Industry: A Two-Sided Matching Approach

In many industries, firms with asymmetric status form alliances in order to gain new resources. We use a unique setting of equity alliances with many-to-one matching in the Thoroughbred Horse Industry to study the effects of status and resource quality of relationships. By considering all possible matches, we find that firms select each other based on the unique quality of their resources and status positively influences the match for the higher status firm while status negatively influences the match for the lower status firm. The paper uses a two-sided matching model with Bayesian estimation to account for endogeneity of the mutual selection in the alliance. Once the partner selection is controlled for, the performance outcome of the alliance is affected by the quality of the resources and the network centrality of both partners, contrary to prior work which suggests the network position of the lower status firm decreases performance. Our results indicate that firms seek overlapping assurance from the e...