119 ENTREPRENEURSHIP AND INNOVATION Vol 11, No 2, 2010, pp 119–127 Does size matter? Balancing power in dyadic cooperation relationships Dietmar Roessl, Matthias Fink and Sascha Kraus Abstract: The authors examine the extent to which differences in depend- ency and power burden cooperative relationships between small and large companies. They also identify the consequences of the behaviour of the cooperation partners. For both small and large cooperation partners, the authors discuss various withdrawal and investment strategies as options for balancing dependency and power among the partners and they sketch possible development paths for such asymmetrical cooperation arrange- ments. Keywords: asymmetrical cooperation; dependence; power; resource- based view; SMEs Dietmar Roessl is a Professor in the Department of Small Business Management and Entrepreneur- ship and Head of the Research Institute for Co-operation and Co-operatives (RiCC) and Matthias Fink is Assistant Professor in the Department of Small Business Management and Entrepreneurship at the Vienna University of Economics and Business, Augasse 2–6, A-1090 Vienna, Austria. E-mail: dietmar.roessl@wu-wien.ac.at; matthias.fink@wu.ac.at. Sascha Kraus is Assistant Professor (Research) of Entrepreneurship at the University of Liechtenstein and Extraordinary Professor and Chair of Entrepreneurship at the Utrecht School of Economics, The Netherlands. E-mail: sascha.kraus@ hochschule.li. The number of cooperations between small and larger firms is steadily rising. One reason is that an increasing number of larger firms worldwide outsource their activities with the aim of cutting costs (Velez et al, 2008). Here, smaller and more specialized firms come into play (Barringer, 1997). These practices lead to increasing linkages of dependence between those larger and small firms, making the interactions and interrela- tions between them a growing topic of academic research (Donada and Nogatchewsky, 2006). In our conceptualization, smaller firms have less freedom of action due to fewer resources. They can use cooperation with larger firms as a strategy to survive in increasingly complex business environments (Barnir and Smith, 2002). Firms with highly similar characteristics often strive to attain similar incentives by making the same contribu- tions, which makes advantageous exchange relationships unlikely to develop between similar companies. Thus heterogeneity between potential partners fosters the evolution of exchange relationships. At the same time, differences in size imply, for example, different manage- ment styles and different cultures, which can be a hindrance to cooperation. Additionally, cooperation arrangements between small and large firms are charac- terized by asymmetrical dependencies (Dant and Schul, 1992). Asymmetrical dependencies are found when cooperation partners each perceive differing relative balances of the incentives received and the contributions to be made. In cooperations between small and large firms, dependence is usually on the side of the small firm (Sharif et al, 2005). Generally, the partner who perceives a higher net incentive will be more interested in setting up a cooperation arrangement. Thus, s/he will become the more dependent partner. Research on the interrelationship between power and dependency has shown that the more dependent partner will tend to perceive more profit in the cooperation arrangement (Cook and Emerson, 1978). Therefore, it is not depend- ency itself, but adapting in order to balance differences