Institutions, Transaction Costs and Inbound Open Innovation: A Multilevel Analysis

While previous studies have mentioned a potential effect of institutional policies on open innovation, we analyse how and why the probability of conducting open innovation can vary across countries. Our conceptual model suggests that decisions to engage in open innovation occur at two levels: at the company or microeconomic level, and at the institutional level. We use a complementary theoretical framework based on transaction costs theory and institutional theory to explain this phenomenon. This framework is rooted in institutional logics that affect transaction costs by establishing the rules of the game and reducing (or increasing) uncertainty in transactions. Using a unique dataset from EFIGE study covering almost 15,000 manufacturing companies active in 7 European countries, and by estimating a multilevel logistic model, we show that institutional variables have a relatively greater weight than microeconomic variables when explaining the variability in decisions regarding engagement in open innovation across Europe. This study’s approach creates a connection between the transaction cost factors that explain decisions to undertake open innovation and the institutions in which a company is embedded.