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Modeling alliance activity: an iterated prisoners' dilemma with exit option

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  • Richard J. Arend
  • Darryl A. Seale

Abstract

We present and solve a new, more accurate model of behavior within alliance activity. The model is essentially an iterated prisoners' dilemma with an exit option in each stage of the alliance. The proposed solution results in each partner receiving its opportunity cost as its expected average pay‐off in the alliance. Managerial implications include: identification of where to focus efforts to improve alliance cooperation and performance; and an explanation for why more sophisticated partnership strategies than tit‐for‐tat are likely to be superior in this game. Copyright © 2005 John Wiley & Sons, Ltd.

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  • Richard J. Arend & Darryl A. Seale, 2005. "Modeling alliance activity: an iterated prisoners' dilemma with exit option," Strategic Management Journal, Wiley Blackwell, vol. 26(11), pages 1057-1074, November.
    • Handle: RePEc:bla:stratm:v:26:y:2005:i:11:p:1057-1074
    DOI: 10.1002/smj.491
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    Cited by:

    1. Zhiang (John) Lin & James A. Kitts & Haibin Yang & J. Richard Harrison, 2008. "Elucidating strategic network dynamics through computational modeling," Computational and Mathematical Organization Theory, Springer, vol. 14(3), pages 175-208, September.
    2. Rodolphe Durand & Robert M. Grant & Tammy L. Madsen & Lenos Trigeorgis & Jeffrey J. Reuer, 2017. "Real options theory in strategic management," Strategic Management Journal, Wiley Blackwell, vol. 38(1), pages 42-63, January.
    3. Kretschmer, Tobias & Banal-Estanol, Albert & Seldeslachts, Jo & Meloso, Debrah, 2017. "The Contingent Effect of Alliance Design on Alliance Dynamics and Performance: An Experimental Study," CEPR Discussion Papers 12512, C.E.P.R. Discussion Papers.
    4. Agarwal, Rajshree & Croson, Rachel & Mahoney, Joseph T., 2007. "Decision Making in Strategic Alliances: An Experimental Investigation," Working Papers 07-0108, University of Illinois at Urbana-Champaign, College of Business.
    5. Richard Arend, 2023. "Testing Behaviors in the Play of an Expected Prisoner's Dilemma," Journal of Behavioral Economics for Policy, Society for the Advancement of Behavioral Economics (SABE), vol. 7(1), pages 25-33, November.
    6. Rene M. Bakker, 2016. "Stepping in and stepping out: Strategic alliance partner reconfiguration and the unplanned termination of complex projects," Strategic Management Journal, Wiley Blackwell, vol. 37(9), pages 1919-1941, September.
    7. Uzea, F. Nicoleta & Fulton, Murray E., 2014. "Mechanisms for Effective Alliance Management: Insights from a Federated Cooperative Marketing System," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 17(1), pages 1-32, February.
    8. Peter Kurrild-Klitgaard, 2010. "Exit, collective action and polycentric political systems," Public Choice, Springer, vol. 143(3), pages 339-352, June.
    9. Chinho Lin & NguyenDong-Thai Dao, 2013. "A System Dynamics Model of Trust, Knowledge Sharing and Stability of Strategic Alliance," Diversity, Technology, and Innovation for Operational Competitiveness: Proceedings of the 2013 International Conference on Technology Innovation and Industrial Management,, ToKnowPress.
    10. Han, Xu & Zhao, Xiaowei & Xia, Haoxiang, 2021. "Evolution of cooperation through aspiration-based adjustment of interaction range in spatial prisoner’s dilemma game," Applied Mathematics and Computation, Elsevier, vol. 393(C).
    11. Luca Petruzzellis & Antonia Rosa Gurrieri & Alberto Pezzi & Marco Lenoci Lenoci, 2016. "Strategic Alliances between Japanese-Western Companies: A Win-Win or Win-Lose Relationship? The Case of the Automobile Industry," International Journal of Business and Management, Canadian Center of Science and Education, vol. 11(11), pages 1-1, October.
    12. Julian Dormann & Thomas Ehrmann & Michael Kopel, 2008. "Managing the Evolution of Cooperation," Papers on Economics and Evolution 2008-01, Philipps University Marburg, Department of Geography.

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