Competition Models of Strategic Alliances

This paper examines competition models for three types of strategic alliances (vertical, horizontal, and hybrid alliances). It is found that even if a vertical alliance creates a negative direct effect on profit, it might be pursued because it is a dominant strategy. In general, total welfare improves as a result of vertical alliances. On the other hand, a horizontal alliance reduces competition not only in the market where prior competition between the partners takes place, but also in other markets of the alliance network. The implications of hybrid alliances for international airline alliances, whose members have both complementary and overlapping routes, are discussed.