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Using an Iterated Prisoner's Dilemma with Exit Option to Study Alliance Behavior: Results of a Tournament and Simulation

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  • Steven E. Phelan

    (University of Nevada Las Vegas)

  • Richard J. Arend

    (University of Nevada Las Vegas)

  • Darryl A. Seale

    (University of Nevada Las Vegas)

Abstract

Nearly half of all strategic alliances fail (Park and Russo, 1996; Dyer et al., 2001), often because of opportunistic behavior by one party or the other. We use a tournament and simulation to study strategies in an iterated prisoner's dilemma game with exit option to shed light on how a firm should react to an opportunistic partner. Our results indicate that a firm should give an alliance partner a second chance following an opportunistic act but that subsequent behavior should be contingent on the value of the next best opportunity outside the alliance. Firms should be more forgiving if the potential benefits from the alliance exceed other opportunities. The strategies were also found to be robust across a wide range of game lengths. The implications of these results for alliance strategies are discussed.

Suggested Citation

  • Steven E. Phelan & Richard J. Arend & Darryl A. Seale, 2005. "Using an Iterated Prisoner's Dilemma with Exit Option to Study Alliance Behavior: Results of a Tournament and Simulation," Computational and Mathematical Organization Theory, Springer, vol. 11(4), pages 339-356, December.
    • Handle: RePEc:spr:comaot:v:11:y:2005:i:4:d:10.1007_s10588-005-5589-3
    DOI: 10.1007/s10588-005-5589-3
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    References listed on IDEAS

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    1. Arvind Parkhe, 1993. "Partner Nationality and the Structure-Performance Relationship in Strategic Alliances," Organization Science, INFORMS, vol. 4(2), pages 301-324, May.
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    3. Robert E., Theodore M., Lynn A., Thomas C. Spekman Forbes, III Isabella MacAvoy, 1998. "Alliance Management: A View from the Past and a Look to the Future," Journal of Management Studies, Wiley Blackwell, vol. 35(6), pages 747-772, November.
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    6. Gordon Tullock, 1985. "Adam Smith and the Prisoners' Dilemma," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(Supplemen), pages 1073-1081.
    7. Seung Ho Park & Michael V. Russo, 1996. "When Competition Eclipses Cooperation: An Event History Analysis of Joint Venture Failure," Management Science, INFORMS, vol. 42(6), pages 875-890, June.
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    Cited by:

    1. Cosmin-Florin LEHENE & Anca BORZA, 2018. "Problems In Strategic Alliances – Should We Terminate The Collaboration? Empirical Evidence From North-West Region Romania," Management and Marketing Journal, University of Craiova, Faculty of Economics and Business Administration, vol. 0(1), pages 7-29, May.
    2. Seale, Darryl A. & Arend, Richard J. & Phelan, Steven, 2006. "Modeling alliance activity: Opportunity cost effects and manipulations in an iterated prisoner's dilemma with exit option," Organizational Behavior and Human Decision Processes, Elsevier, vol. 100(1), pages 60-75, May.
    3. 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.
    4. Peter Kurrild-Klitgaard, 2010. "Exit, collective action and polycentric political systems," Public Choice, Springer, vol. 143(3), pages 339-352, June.
    5. Francesca Pancotto & Simone Righi & Károly Takács, 2023. "Voluntary play increases cooperation in the presence of punishment: a lab in the field experiment," Theory and Decision, Springer, vol. 95(3), pages 405-428, October.
    6. Rudolf Vetschera & D. Marc Kilgour, 2013. "Strategic Behavior in Contested-Pile Methods for Fair Division of Indivisible Items," Group Decision and Negotiation, Springer, vol. 22(2), pages 299-319, March.
    7. 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).
    8. Amnon Rapoport & Darryl A Seale & Andrew M Colman, 2015. "Is Tit-for-Tat the Answer? On the Conclusions Drawn from Axelrod's Tournaments," PLOS ONE, Public Library of Science, vol. 10(7), pages 1-11, July.

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