Rivalry between strategic alliances

Rivalry between strategic alliances is investigated in a model where each alliance member maximizes its own profit and some share of its partner's profit. A complementary alliance confers a strategic advantage by allowing the partners to credibly commit to greater output, owing to both within-alliance complementarities and cross-alliance substitutabilities. Although rivalry between different alliances can sometimes lead to a Prisoners' Dilemma for firms, it tends to improve economic welfare. On the other hand, an alliance that arises due purely to the threat of entry may reduce welfare.