Artificial Intelligence, Alliances, and Innovation1

This paper examines the influence of artificial intelligence (AI) on research and development (R&D) practices, proposing that AI enables firms to discover, evaluate, and make sense of information from their partners, thereby reducing information asymmetry and allowing alliances to flourish. Empirically, we approximate a firm’s AI resources using patents and job postings to analyze the relationship amongst AI, alliances, and drug innovation in the pharmaceutical industry. Our findings show that firms with greater AI resources shift their locus of innovation toward alliances and develop more drugs from their alliances. Furthermore, AI can be particularly useful in exploiting information held by counterparties within an alliance. Taken together, our study highlights the complementary role of AI and alliances, shedding light on how modern organizational and technological advancements jointly shape the production of innovation.