DR. TOBIAS KRETSCHMER
Alliances come in many shapes and forms. We show in a simple formal model that alliances can resemble two broad types, depending on the degree of product market competition: Low competition alliances will resemble a stag hunt game in which contributing to the alliance is in the partners’ interests. High competition alliances are akin to a prisoner’s dilemma in which alliance partners have an interest in withholding effort, at least if the alliance game is played only once. We match these two alliance environments with different alliance configurations and vary the number of alliance partners and the level of commitment. We find that alliance configuration matters most in high competition alliances, while performance of low competition alliances is relatively unaffected by different alliance configurations. This points towards important contingencies for the choice of alliance configuration.
