Collaborating to Compete
AbstractIn collaborating to compete, firms forge different types of strategic alliances: same-function alliances, parallel development of new products, and cross-functional alliances. A major challenge in the management of these alliances is how to control the resource commitment of partners to the collaboration. In this research we examine both theoretically and experimentally how the type of an alliance and the prescribed profit-sharing arrangement affect the resource commitments of partners. We model the interaction within an alliance as a noncooperative variable-sum game, in which each firm invests part of its resources to increase the utility of a new product offering. Different types of alliances are modeled by varying how the resources committed by partners in an alliance determine the utility of the jointly-developed new product. We then model the interalliance competition by nesting two independent intra-alliance games in a supergame in which the groups compete for a market. The partners of the winning alliance share the profits in one of two ways: equally or proportionally to their investments. The Nash equilibrium solutions for the resulting games are examined. In the case of same-function alliances, when the market is large the predicted investment patterns under both profit-sharing rules are comparable. Partners developing new products in parallel, unlike the partners in a same-function alliance, commit fewer resources to their alliance. Further, the profit-sharing arrangement matters in such alliances—partners commit more resources when profits are shared proportionally rather than equally. We test the predictions of the model in two laboratory experiments. We find that the aggregate behavior of the subjects is accounted for remarkably well by the equilibrium solution. As predicted, profit-sharing arrangement did not affect the investment pattern of subjects in same-function alliances when they were in the high-reward condition. Subjects developing products in parallel invested less than subjects in same-function alliance, irrespective of the reward condition. We notice that theory seems to predict investments in low-reward conditions. Aplausible explanation for this departure from the normative benchmark is that subjects in the low-reward condition were influenced by altruistic regard for their partners. These experiments also clarify the support for the mixed strategy equilibrium: aggregate behavior conforms to the equilibrium solution, though the behavior of individual subjects varies substantially from the norm. Individual-level analysis suggests that subjects employ mixed strategies, but not as fully as the theory demands. This inertia in choice of strategies is consistent with learning trends observed in the investment pattern. A new analysis of Robertson and Gatignon's (1998) field survey data on the conduct of corporate partners in technology alliances is also consistent with our model of samefunction alliances. We extend the model to consider asymmetric distribution of endowments among partners in a same-function alliance. Then we examine the implication of extending the strategy space to include more levels of investment. Finally, we outline an extension of the model to consider cross-functional alliances.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Marketing Science.
Volume (Year): 19 (2000)
Issue (Month): 2 (November)
Strategic Alliances; Experimental Economics; Competitive Strategy; Game Theory; New Product Development;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Geoffrey Hodgson & Thorbjørn Knudsen, 2006.
"The nature and units of social selection,"
Journal of Evolutionary Economics,
Springer, vol. 16(5), pages 477-489, December.
- Bornstein, Gary & Kugler, Tamar & Budescu, David V. & Selten, Reinhard, 2008.
"Repeated price competition between individuals and between teams,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 66(3-4), pages 808-821, June.
- Gary Bornstein & David V. Budescu & Tamar Kugler & Reinhard Selten, 2002. "Repeated Price Competition Between Individuals and Between Teams," Discussion Paper Series dp303, The Center for the Study of Rationality, Hebrew University, Jerusalem.
- Perry, Monica L. & Sengupta, Sanjit & Krapfel, Robert, 2004. "Effectiveness of horizontal strategic alliances in technologically uncertain environments: are trust and commitment enough?," Journal of Business Research, Elsevier, vol. 57(9), pages 951-956, September.
- Bornstein, Gary & Gneezy, Uri & Nagel, Rosmarie, 2002.
"The effect of intergroup competition on group coordination: an experimental study,"
Games and Economic Behavior,
Elsevier, vol. 41(1), pages 1-25, October.
- Gary Bornstein & Uri Gneezy & Rosemarie Nagel, 1999. "The effect of intergroup competition on group coordination: An experimental study," Economics Working Papers 393, Department of Economics and Business, Universitat Pompeu Fabra.
- Gunnthorsdottir, Anna & Rapoport, Amnon, 2006. "Embedding social dilemmas in intergroup competition reduces free-riding," Organizational Behavior and Human Decision Processes, Elsevier, vol. 101(2), pages 184-199, November.
- Marcos Singer & Patricio Donoso, 2001. "The Effect Of Vertical Integration In The Quality Of Disposable Products," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 4(2), pages 133-155.
- Karray, Salma, 2011. "Effectiveness of retail joint promotions under different channel structures," European Journal of Operational Research, Elsevier, vol. 210(3), pages 745-751, May.
- Son, Minhee & Hahn, Minhi & Kang, Hyunmo, 2006. "Why firms do co-promotions in mature markets?," Journal of Business Research, Elsevier, vol. 59(9), pages 1035-1042, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If references are entirely missing, you can add them using this form.