Why more isn’t always better: Examining the effects of network density on firms’ likelihood of new product innovation

In today’s interconnected business landscape, firms leverage interorganizational networks to drive innovation. Network benefits depend on their structure, particularly the interconnectedness of a firm’s partners and their own partners − known as higher-order network density. Adopting an empirics-first approach, we examine how higher-order network density and cognitive distance – the dissimilarity in knowledge bases, organizational focus, and technological expertise between firms – jointly impact product innovation. We analyze a comprehensive Dutch cross-industry network using a novel approach combining traditional innovation outcomes data with web-based network analysis, and find a curvilinear relationship between higher-order network density and product innovation, contingent on cognitive distance. Moving beyond the ego-network lens exposes a critical insight: When firms and network partners are cognitively distant, both the benefits of moderate density and costs of excessive density are amplified. Our approach offers practical tools for mapping networks, addressing challenges managers face in structuring networks for innovation.