Do firms balance exploration and exploitation in their alliance formation decisions and, if so,
why and how? We argue that absorptive capacity and organizational inertia impose
conflicting pressures for exploration and exploitation with respect to the value chain function
of alliances, the attributes of partners, and partners' network positions. Although path
dependencies reinforce either exploration or exploitation within each of these domains, we
find that firms balance their tendencies to explore and exploit over time and across domains.

Firms seek to balance exploration and exploitation, yet little is known about the mechanisms
driving firms' decisions to pursue these activities. We offer a framework that reconciles the
contradictions and mixed evidence in prior research by contrasting the organizational inertia
perspective with the organizational slack and absorptive capacity perspectives on
exploration-exploitation. We study these perspectives in the context of alliance formation,
distinguishing exploration alliances from exploitation alliances along three dimensions:(a) …