Competition,formal governance and trust in alliances: An experimental study |
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Affiliation: | 1. ISTO, LMU Munich, Germany;2. Dpt. of Finance and Economics, TBS Business School, France;3. Department of Economics and Business, Universitat Pompeu Fabra and Department of Economics, City University of London, USA;4. KU Leuven, DIW Berlin and University of Amsterdam, Belgium;5. ISTO and Organizations Research Group, LMU Munich and Centre for Economic Policy Research (CEPR), London, USA |
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Abstract: | We study the role of alliance governance in the behavior of partners in alliances with different degrees of competition. Using data from a lab experiment on 1,009 alliances and 31,662 partners' choices, we explore whether and how alliances succeed in different competitive scenarios, contingent on the use of formal governance mechanisms (termination clauses) and the number of partners in the alliance. We find that trust, an informal governance mechanism, emerges as a complement to formal governance in order to establish success in our experimental alliances, especially when competition is high. In particular, we document the significance of “trust-building” in initial stages and “trust repair” in later stages of our experimental alliances. |
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Keywords: | Strategic alliances Lab experiment Alliance dynamics Forgiveness Stability |
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