Membership Rule and Strategic Alliances:An Experimental Approach

Recently, new game theoretic approaches have been suggested that address the emergence of inter-firm collaborative agreements (strategic alliances) that are situated between standard market transactions of unrelated companies and their integration by means of mergers and acquisitions. This paperexperimentally investigates the interdependence between two membership rules and the endogenouslyemerging inter-firm collaborative structures. In the implemented frameworks, the formation of coalitions between competing firms is modelled as a two-stage non-cooperative game. On a first stage firmsform collaborative coalitions in order to decrease their marginal costs of production. Consecutively,firms compete on the market. More precisely, we look at the coalition formation models of Bloch[RAND Journal of Economics, 26, 1995; Games and Economic Behavior, 14, 1996] who applies anexclusive membership rule and contrast it with a setting in which an open membership rule such assuggested in Yi [RAND Journal of Economics, 29, 1998] prevails. While in the former setting a firmcan enter into a coalition only if all existing members of the coalition agree, in the latter setting a firmdoes not need the consent of anybody to join a coalition. In addition to comparing the behavior underthe regimes of the two mentioned membership rules, we compare these baseline settings to others intowhich we introduce coalition formation costs increasing linearly with coalition size.