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The paper explores the relation between absorptive capacity and the propensity to collaborate across geographical distance. The analysis is based on quantitative data from two neighbouring Danish regions on the location of the main partner in product-innovation activities. The findings indicate that the importance of absorptive capacity in relation to collaboration across geographical distance depends on the location of the innovative firm. Firms located in the relatively sparsely populated region are more likely to collaborate with firms located outside the region; and for these firms, the level of absorptive capacity matters for the distance to the collaboration partners—firms with a low level of absorptive capacity tend to collaborate with domestic partners, while those with a high level of absorptive capacity are much more likely to find their main product-innovation partner abroad.Product innovation, distance, collaboration, absorptive capacity,

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What motivates firms to engage in shared innovation activities in complex technologies, where appropriation of value is interdependent on others? Transaction cost economics prescribes that innovations that are complex and systemic in nature should not be distributed among several actors. Here the firm is clearly the locus of innovation. Opposed to this, the network-based view suggests that a distributed organization may be the most efficient way to organize innovative processes under uncertain and rapidly changing conditions and that, because the locus of innovation is the collaborative network, firms are forced to join in order to stay informed. However, these two contrasting views both overlook the complexities of real-life activities. Understanding that firms' motives and propensity to collaborate are contingent on and evolve as industries evolve is the key to understanding their attitude towards sharing and co-developing knowledge.