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Modeling alliance activity: Opportunity cost effects and manipulations in an iterated prisoner's dilemma with exit option

Published on May 1, 2006in Organizational Behavior and Human Decision Processes2.91
· DOI :10.1016/j.obhdp.2006.01.002
Darryl A. Seale17
Estimated H-index: 17
(UNLV: University of Nevada, Las Vegas),
Richard J. Arend17
Estimated H-index: 17
(UNLV: University of Nevada, Las Vegas),
Steven E. Phelan14
Estimated H-index: 14
(UNLV: University of Nevada, Las Vegas)
Cite
Abstract
Abstract We model the two-firm alliance as an iterated prisoners’ dilemma game with an exit option and test several theoretical predictions over two experimental studies. A new major effect on alliance performance arises by including the exit option (i.e., the option to end the alliance and receive a fixed payoff that is less than the payoff for mutual cooperation but greater than the payoff for mutual defection). The opportunity cost levels of the firms either directly or indirectly influence alliance cooperation and alliance payoffs through affecting the alliance strategies that the firms choose. Implications for partner selection, alliance selection and structuring, and strategy choices along the alliance lifespan, build on these results.
  • References (42)
  • Citations (14)
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References42
Newest
Published on Oct 1, 1985
Robert Axelrod43
Estimated H-index: 43
(UM: University of Michigan),
Willie Hamilton56
Estimated H-index: 56
(UM: University of Michigan)
Cooperation in organisms, whether bacteria or primates, has been a difficulty for evolutionary theory since Darwin. On the assumption that interactions between pairs of individuals occur on a probabilistic basis, a model is developed based on the concept of an evolutionarily stable strategy in the context of the Prisoner9s Dilemma game. Deductions from the model, and the results of a computer tournament show how cooperation based on reciprocity can get started in an asocial world, can thrive whi...
Steven E. Phelan14
Estimated H-index: 14
(UNLV: University of Nevada, Las Vegas),
Richard J. Arend17
Estimated H-index: 17
(UNLV: University of Nevada, Las Vegas),
Darryl A. Seale17
Estimated H-index: 17
(UNLV: University of Nevada, Las Vegas)
Nearly half of all strategic alliances fail (Park and Russo, 1996; Dyer et al., 2001), often because of opportunistic behavior by one party or the other. We use a tournament and simulation to study strategies in an iterated prisoner's dilemma game with exit option to shed light on how a firm should react to an opportunistic partner. Our results indicate that a firm should give an alliance partner a second chance following an opportunistic act but that subsequent behavior should be contingent on ...
Published on Nov 1, 2005in Strategic Management Journal5.57
Richard J. Arend17
Estimated H-index: 17
(UNLV: University of Nevada, Las Vegas),
Darryl A. Seale17
Estimated H-index: 17
(UNLV: University of Nevada, Las Vegas)
We present and solve a new, more accurate model of behavior within alliance activity. The model is essentially an iterated prisoners' dilemma with an exit option in each stage of the alliance. The proposed solution results in each partner receiving its opportunity cost as its expected average pay‐off in the alliance. Managerial implications include: identification of where to focus efforts to improve alliance cooperation and performance; and an explanation for why more sophisticated partnership ...
Published on Jan 1, 2004in Organization Science3.26
Mark de Rond13
Estimated H-index: 13
(University of Cambridge),
Hamid Bouchikhi8
Estimated H-index: 8
(ESSEC Business School)
Using Van de Ven and Poole's (1995) extensive assessment of process theories as an intellectual scaffold, we review theoretical contributions to our understanding of alliance dynamics and process. It appears that of four generic theoretical engines, only three-life cycle, teleology, and evolution-are reasonably well covered in this literature. Process studies informed by a dialectical theory, however, appear to be markedly absent. We explore the characteristics and contributions of a dialectical...
Published on Oct 1, 2003in Academy of Management Review10.63
Ming Zeng1
Estimated H-index: 1
(Cheung Kong Graduate School of Business),
Xiao-Ping Chen29
Estimated H-index: 29
(UW: University of Washington)
We propose a social dilemma approach to cooperation induction in multiparty alliances. We first establish that managing the inherent tension between cooperation and competition in alliances is essentially a social dilemma, where an individually rational but socially defecting choice may lead to a higher payoff for an individual partner but where, once all partners adopt such a strategy, the alliance will fail. We then develop propositions on how partners can improve their chances for cooperation...
Yung-An Hu1
Estimated H-index: 1
,
Day-Yang Liu1
Estimated H-index: 1
(NTUST: National Taiwan University of Science and Technology)
I Introduction THE MAINSTREAM of modern economic theory is built upon two crucial assumptions: first, tastes are given; second, individuals are rational, self-interested economic human beings. By and large, the paradigm of rational choice performs well much of the time, but it remains incomplete since it is often observed that people also pursue the interest of others, such as donating money to charity, volunteering to work for nonprofit organizations, voting, etc. Due to these observed instance...
Published on Jun 19, 2003
Mark de Rond13
Estimated H-index: 13
Foreword A. Huff Preface: By way of introduction 1. Paradoxes of alliance life 2. The context of drug discovery 3. Case study 1: Rummidgen and plethora 4. Case study 2: Cambiogen and plethora 5. Case study 3: Bionatura and pflegum-courtal 6. Putting two and two together: Revisiting theory and practice 7. Strategy, structure, and structuration: The general in the particular 8. The hedgehog and the fox: The particular in the general 9. The legitimacy of messiness Appendix: A few words on methodolo...
Published on Jul 1, 2001in European Journal of Social Psychology1.77
Thomas Mussweiler40
Estimated H-index: 40
Recent research suggests that judgmental anchoring is mediated by a selective increase in the accessibility of knowledge about the judgmental target. Anchoring thus constitutes one instance of the judgmental effects of increased knowledge accessibility. Such knowledge accessibility effects have repeatedly been demonstrated to be fairly durable, which suggests that the effects of judgmental anchoring may also persist over time. Consistent with this assumption, three experiments demonstrate that j...
Published on Sep 1, 2000in The American Economic Review4.10
Ernst Fehr98
Estimated H-index: 98
,
Simon Gächter48
Estimated H-index: 48
This paper provides evidence that free riders are heavily punished even if punishment is costly and does not provide any material benefits for the punisher. The more free riders negatively deviate from the group standard the more they are punished. As a consequence, the existence of an opportunity for costly punishment causes a large increase in cooperation levels because potential free riders face a credible threat. We show, in particular, that in the presence of a costly punishment opportunity...
Marc Knez11
Estimated H-index: 11
(U of C: University of Chicago),
Colin F. Camerer99
Estimated H-index: 99
(California Institute of Technology)
Coordination games have multiple Nash equilibria (i.e., sets of strategies which are best responses to one another). In weak-link coordination games players choose a number 1–7. Their payoff is increasing in the minimum number (or weakest link) and decreasing in the difference between their number and the minimum. Choosing 7 is an efficient equilibrium because it gives everybody a higher payoff than any other coordinated choice. Higher-payoff equilibria are riskier, however, so the game expresse...
Cited By14
Newest
Published on May 7, 2019in Palgrave Communications
Rebekka Kesberg1
Estimated H-index: 1
,
Stefan Pfattheicher12
Estimated H-index: 12
The implementation of punishment has proven a prominent solution to prevent the breakdown of cooperation in social dilemma situations. In fact, numerous studies show that punishment possibilities are effective in maintaining cooperative behavior. However, punishment is often not efficient in terms (a) of monetary benefits and in light of the fact (b) that punishment of cooperators (i.e., antisocial punishment) can occur. Still, recent research revealed that individuals vote for the implementatio...
Published on Jul 27, 2018in The Accounting Review4.56
Igor Goncharov9
Estimated H-index: 9
(Lancaster University),
Caspar David Peter (EUR: Erasmus University Rotterdam)
ABSTRACT Firms coordinate their actions with industry peers, thereby affecting product market competition. Using the cartel setting, we investigate how financial reporting transparency affects indu...
Published on Jan 1, 2019in Journal of Behavioral Decision Making1.79
Tessa Haesevoets4
Estimated H-index: 4
(UGent: Ghent University),
Dries H. Bostyn5
Estimated H-index: 5
(UGent: Ghent University)
+ 2 AuthorsAlain Van Hiel36
Estimated H-index: 36
(UGent: Ghent University)
The prisoner's dilemma game is a mixed-motive game that offers two players the simultaneous choice between a cooperative and a defective alternative. An often neglected aspect of such a binary-choice game, however, is that in many real-life encounters, people can choose not only to cooperate or defect, but they also have a third option: to exit the social dilemma. Although in the literature a consensus has emerged that the addition of an exit opportunity benefits cooperation, there is only scant...
Published on Jan 1, 2018
During 1990–2017 there was substantial debate about the nature and extent of earnings management by companies included in popular stock indices (such as SP (ii) characterizing “Popular-Index Ecosystems” and the effects of such systems on the business climate in general; (iii) introducing new theories of corporate governance, managerial psychology, networks and risk.
Published on Jan 1, 2018
The Global Financial Crisis and stock market crashes that occurred in various countries during 2000–2015 have exposed significant weaknesses in economies, Stock Indices and “Regulatory Strategic Alliances” and Intertemporal Asset Pricing Theories.
Published on Jul 1, 2017in Animal Behaviour2.67
Ching-Chun Lin (NTU: National Taiwan University), Lee Alan Dugatkin44
Estimated H-index: 44
(University of Louisville)
+ 2 AuthorsSheng-Feng Shen11
Estimated H-index: 11
(NTU: National Taiwan University)
Collective action problems arise when two or more individuals can free ride on one another's efforts when investing jointly in a common good. Many collective action tasks in nature, such as parental care, require multiple stages of investments to complete a task, but how the costs of consecutive periods of investment and the excludability and diminishability of a collective good influence investment strategy remains poorly understood. Here, we first developed an evolutionary game-theoretical mod...
Published on Dec 1, 2015in International Business Review3.64
Peter J. Buckley57
Estimated H-index: 57
(University of Leeds),
Adam R. Cross13
Estimated H-index: 13
(Xi'an Jiaotong-Liverpool University),
Claudio De Mattos6
Estimated H-index: 6
(University of Manchester)
This study investigates an under-researched topic: individual-to-individual or team-to-team interactions during the alliance pre-formation phase. We develop a general theory based on the principle of congruity for understanding the micro-dynamics of the alliance formation process. The attitudes of each party in an alliance towards their prospective partner depend on the level of mismatch between their initial evaluations of the contributions of each partner, and on their wish intensity and speed...
F. Nicoleta Uzea1
Estimated H-index: 1
,
Murray Fulton19
Estimated H-index: 19
(U of S: University of Saskatchewan)
Despite their continuing popularity and value-creation potential, strategic alliances fail as often as they succeed. Alliance failure is often attributed to opportunistic behavior by one or more of the partners. This paper draws upon empirical evidence from a successful alliance – a federated cooperative marketing system – to shed light on some of the economic and behavioral strategies and mechanisms that alliances can use to promote effective cooperation among alliance partners. The paper also ...
Published on Jan 1, 2012
H. Emre Yildiz5
Estimated H-index: 5
Acquisitions represent a common modus operandi of firm growth. Notwithstanding their lasting popularity, the majority of deals are reported to be unsuccessful. Given their prevalence and practical ...
Published on Jan 1, 2011
T ScholzJohn32
Estimated H-index: 32
,
T. K. Ahn20
Estimated H-index: 20
The ability to select and reject partners creates a powerful means of supporting cooperation when a common set of actors faces repeated possibilities for playing the prisoner’s dilemmas with each other, a common situation that we refer to as a voluntary dilemma. The cooperative quit-for-tat (QFT) strategy that maintains all relationships with mutually cooperative partners but quits any relationship after a defection can maintain cooperation in voluntary dilemmas by joining together and excluding...