Collaborating to Compete: A Game Theoretic Model and Experimental Investigation of the Effect of Profit-Sharing Arrangement and of Alliance on Resource-Commitment Decisions.

In collaborating to compete, firms forge different types of strategic alliances: same-function alliances, parallel development of new products, and cross-functional alliances. A major challenge in the management of these alliances is how to control the resource commitment of partners to the collaboration. In this research we examine both theoretically and experimentally how the type of an alliance and the prescribed profit-sharing arrangement affect the resource commitments of partners. We model the interaction within an alliance as a non-cooperative variable-sum game, in which each firm invests part of its resources to increase the utility of a new product offering. Different types of alliances are modeled by varying how the resources committed by partners in an alliance determine the utility of the jointly-developed new product. We then model the inter-alliance competition by nesting two independent intra-alliance games in a supergame in which the group compete for a market. The partners of the winning alliance share the profits in one of two ways: equally or proportionally to their investments. The Nash equilibrium solutions for the resulting games are examined.