Alliances and cost declaration

Susan Gensemer and Kiridaran Kanagaretnam
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Susan Gensemer: Department of Economics, Syracuse University, Syracuse, NY 13244, USA, Postal: Department of Economics, Syracuse University, Syracuse, NY 13244, USA

Managerial and Decision Economics, 2004, vol. 25, issue 3, 121-136

Abstract: Our model explores the co-existence of both cooperative and competitive behaviors in an alliance setting. Specifically, when alliance partners cooperatively choose observable contributions given reported costs, their self-interested behavior may lead to misreporting of costs related to these contributions.

We show that truthful cost reporting by an alliance firm is valuable, thereby establishing that accurate cost reports are a determinant of successful alliance performance. Next we show that an alliance firm's cost reporting behavior may depend on the type of payoffs it receives from alliance, i.e., a share of profit or revenue, and also on the type of relationship between contributions, i.e., whether they are technical substitutes or complements. While we have focussed on highlighting factors which underlie cost misreporting, this study also may serve as a basis for investigating ways to design contracts to diminish the loss an alliance suffers from cost misreporting of the firms, thus increasing the chance that an alliance will be successful. Copyright © 2004 John Wiley & Sons, Ltd.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:25:y:2004:i:3:p:121-136

DOI: 10.1002/mde.1141

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