How Alliances Reshape Competition

Abstract

A lliances are intended to help firms cooperate better and also to help them compete better. Are these two objectives always compatible? How are they balanced in alliance strategy? And, more broadly, how does the spread of alliances affect the dynamics of competition? These questions go to the heart of the role of alliances in the organization of industry—a subject that attracted some early research but that has been ignored of late in favor of studies on the internal workings of alliances. These studies have paid off handsomely, but precisely because of this, it is now time to redirect our attention back to the broader questions of how alliances reshape competition. This chapter proposes a way to think about the interaction between alliances and competition. It begins by reviewing what the literature in industrial organization has had to say about this question. The short answer is “not much”; alliances were a late addition to the research agenda in industrial organization. More recently, alliances have been dealt with routinely in analyses of firm boundaries; this is forcing a new way of thinking about competition. I will argue that competition increasingly takes the form of groups of allied firms against other groups instead of the traditional battle of firm versus firm. This kind of competition is different from that assumed in standard models of industrial organization and of strategy. Understanding this new kind of competition requires us to broaden our unit of analysis and to consider explicitly the various ways in which competition and cooperation interact. (For related work and precursors to this paper, see Gomes-Casseres, 1996 and 2003.)