Strategic Profit Sharing Between Firms: A Win-Win Strategy
Our companion article developed a clear conceptual framework of profit sharing between two rival firms and studied the positive effects of this strategy on each firm's profit under the assumption that each firm decides unilaterally to give away voluntarily a part of its profit to its rival. This article relaxes partially this assumption by letting only one firm to share its profit whereas the other firm keeps its entire profit. Contrary to the previous article, we show that no firm wins by adopting such an opportunistic behavior. This suggests that profit sharing between firms is a win-win (dominant) strategy if both firms are involved and compete in prices.
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