Pro- versus Anti-Competitive Alliances

Abstract:     
This paper considers the competitive effects of funding and collaboration alliances between established corporations and entrepreneurial potential rivals. We develop a formal setting to explore how in the presence of mutual agency conflicts, (i) cost efficiencies from resource sharing, (ii) the strength of strategic substitutabilities/replacement effects, and (iii) alliance design (arm's length vs tight relationships, financial security design) give rise to anti- or pro-competitive effects. The analysis provides novel insights into the competitive effects of alliances between rivals, the optimal design of alliances, and the differenent roles of equity participations.

Number of Pages in PDF File: 37

Keywords: Strategic Alliances, Collaborations Among Competitors, Financial Contracting and Product Market Competition, Entrepreneurship, Antitrust

JEL Classification: G3, L1, L2, L4, M1

working papers series