Using an Iterated Prisoner's Dilemma with Exit Option to Study Alliance Behavior: Results of a Tournament and Simulation

Steven E. Phelan (), Richard J. Arend () and Darryl A. Seale ()
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Steven E. Phelan: University of Nevada Las Vegas
Richard J. Arend: University of Nevada Las Vegas
Darryl A. Seale: University of Nevada Las Vegas

Computational and Mathematical Organization Theory, 2005, vol. 11, issue 4, No 4, 339-356

Abstract: Abstract 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 the value of the next best opportunity outside the alliance. Firms should be more forgiving if the potential benefits from the alliance exceed other opportunities. The strategies were also found to be robust across a wide range of game lengths. The implications of these results for alliance strategies are discussed.

Keywords: game theory; strategic alliances; opportunism; tournament (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s10588-005-5589-3

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