Interactions and Interests: Collaboration Outcomes, Competitive Concerns, and the Limits to Triadic Closure

Organizational theorists have extensively documented the increased likelihood that two organizations will form a relationship if they have preexisting relationships with the same third party, a phenomenon known as triadic closure. They have neglected, however, the importance of the shared third party in facilitating or reversing this process. I theorize that the collaboration outcomes and competitive concerns of the intermediary spanning an open triad play a crucial role in whether that triad closes. Using a longitudinal dataset of the investment decisions of limited partners investing in U.S. venture capital firms in the period 1997–2007, I find that an intermediary is less likely to facilitate a direct connection under two conditions: (1) the intermediary has experienced failed collaborations with one of the indirectly connected parties or (2) the intermediary has competitive concerns—driven by its replaceability and relative attractiveness—that it may lose future business to one of the indirectly connected parties. The paper goes beyond the conceptualization of indirect ties as passive scaffolding that supports creating direct ties and instills a greater appreciation for the role of the intermediary that sits across them.