Rivalry between strategic alliances

Rivalry between strategic alliances is investigated in a model where each alliance member maximizes its own profit and some share of its partner's profit. A complementary alliance confers a strategic advantage by allowing the partners to credibly commit to greater output, owing to both within-alliance complementarities and cross-alliance substitutabilities. Although rivalry between different alliances can sometimes lead to a Prisoners' Dilemma for firms, it tends to improve economic welfare. On the other hand, an alliance that arises due purely to the threat of entry may reduce welfare. (c) 2005 Elsevier B.V. All rights reserved.