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Alliances and cost declaration

Author

Listed:
  • Susan Gensemer

    (Department of Economics, Syracuse University, Syracuse, NY 13244, USA)

  • Kiridaran Kanagaretnam

    (DeGroote School of Business, McMaster University, Hamilton, Ont., Canada L8S 4M4)

Abstract

Our model explores the co-existence of both cooperative and competitive behaviors in an alliance setting. Specifically, when alliance partners cooperatively choose observable contributions given reported costs, their self-interested behavior may lead to misreporting of costs related to these contributions. We show that truthful cost reporting by an alliance firm is valuable, thereby establishing that accurate cost reports are a determinant of successful alliance performance. Next we show that an alliance firm's cost reporting behavior may depend on the type of payoffs it receives from alliance, i.e., a share of profit or revenue, and also on the type of relationship between contributions, i.e., whether they are technical substitutes or complements. While we have focussed on highlighting factors which underlie cost misreporting, this study also may serve as a basis for investigating ways to design contracts to diminish the loss an alliance suffers from cost misreporting of the firms, thus increasing the chance that an alliance will be successful. Copyright © 2004 John Wiley & Sons, Ltd.

Suggested Citation

  • Susan Gensemer & Kiridaran Kanagaretnam, 2004. "Alliances and cost declaration," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 25(3), pages 121-136.
    • Handle: RePEc:wly:mgtdec:v:25:y:2004:i:3:p:121-136
    DOI: 10.1002/mde.1141
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    References listed on IDEAS

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    Cited by:

    1. Y. I. Song & W. Woo & H. R. Rao, 2007. "Interorganizational information sharing in the airline industry: An analysis of stock market responses to code-sharing agreements," Information Systems Frontiers, Springer, vol. 9(2), pages 309-324, July.
    2. Bogumił Kamiński & Maciej Łatek, 2010. "Tradeoff between Equity and Effciency in Revenue Sharing Contracts," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 2(1), pages 1-16, January.

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