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Implementable Mechanisms to Coordinate Horizontal Alliances

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Author
Nault, Barrie R
Tyagi, Rajeev K.
Accessioned
2015-05-25T22:16:49Z
Available
2015-05-25T22:16:49Z
Issued
2001-06
Subject
Economics of Interaction
Horizontal Alliances
Externalities
Incentive Mechanisms
Type
journal article
Metadata
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Abstract
Unprecedented changes in the economics of interaction, mainlyas a result of advances in information and telecommunication technologies such as the Internet, are causing a shift toward more networked forms of organizations such as horizontal alliances—that is, alliances among firms in similar businesses that have positive externalities between them. Because the success of such horizontal alliances depends cruciallyon aligning individual alliance member incentives with those of the alliance as a whole, it is important to find coordination mechanisms that achieve this alignment and are simple-to-implement. In this paper, we examine two simple coordination mechanisms for a horizontal alliance characterized by the following features: (i) firms in the alliance can exert effort onlyin their “local” markets to increase customer demand for the alliance; (ii) customers are mobile and a customer living in a given alliance member’s local area mayhave a need to buyfr om some other alliance member; and (iii) the coordination rules followed bythe alliance determine which firms from a large pool of potential member-firms join the alliance, and how much effort each firm joining the alliance exerts in its local market. In this horizontal alliance setup, we consider the use of two coordination mechanisms: (i) a linear transfer of fees between members if demand from one member’s local customer is served byanother member, and (ii) ownership of an equal share of the alliance profits generated from a royalty on each member’s sales. We derive conditions on the distribution of demand externalities among alliance members to determine when each coordination mechanism should be used separately, and when the mechanisms should be used together.
*INFORMS: unless published under the open access option, the publisher will provide a specific copy of the paper that can be posted to a web page https://www.informs.org/Find-Research-Publications/INFORMS-Journals/Rights-Permissions#work. Publisher provided copy as per publisher's policy. 05/22/2015
 
Citation
Nault, B.R., and R.K. Tyagi, "Implementable Mechanisms to Coordinate Horizontal Alliances," Management Science, 47, 6 (June 2001), 787-799
Corporate
University of Calgary
Department
Management Information Systems
Faculty
Haskayne School of Business
Institution
University of Calgary
Publisher
INFORMS
Doi
http://dx.doi.org/10.11575/PRISM/28800
Uri
http://hdl.handle.net/1880/50442
Collections
  • Haskayne School of Business Research & Publications

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