The Role of Incentives and Communication in Strategic Alliances: an Experimental Investigation

away from the confounding issues that are clearly relevant in actual strategic alliances undertaken by corporations in the real world. For instance, our experiments controlled for selection effects by randomly assigning participants to the different treatments, and did not take into account exogenous uncertainty (either technological or demand driven). Future research examining the role of prior relationships, due diligence in the pre-alliance phase in exchange partner choice, and the use of contractual safeguards can help shed light on the effect of these factors on decision making. In the same vein, our anonymous experimental setting did not permit strategic alliance members to credibly threaten consequences for deviant behavior, and research in this area would be beneficial as well. All of these factors may be important additional criteria for increasing the likelihood of success. This is a particularly important area of further research since our empirical results show that even in the treatments where there were both incentive alignment and communication, there was a 40 percent likelihood that the strategic alliance would not succeed. Therefore, our experiment demonstrated that even in the simple game structures that we used, strategic alliance partners may place a nonzero probability that others will not cooperate, and accordingly choose the risk dominant strategy among the multiple Nash equilibria. Exogenous uncertainty may interact with the endogenous uncertainty about alliance partner actions to create additional challenges in the realization of the potential economic value creation, and research that examines such interaction effects would be fruitful. The use of students as subjects is open to the criticism that students may not emulate the actual decisions of managers in a strategic alliance setting. We think that this concern is somewhat mitigated in our setting for the following reasons. First, the majority of the participants in our experiments had at least four years of work experience. Further, there was no significant difference in the results obtained for groups in which the alliance members were executive MBA’s; the average of this cohort was approximately 40 years of age with a minimum of seven years work experience. Many of the executives had also participated in strategic alliance activity as part of their job descriptions. Finally, research in experimental economics has addressed this issue explicitly. Indeed, Dyer, Kagel, and Levine (1989) and Croson and Donohue (2006) find that ‘real world’ decision makers performed the same or sometimes worse in the laboratory setting than students. Nonetheless, additional research that uses other sampling frames, not just MBA/undergraduate students, would clearly provide additional value to the field. Copyright  2009 John Wiley & Sons, Ltd. Strat. Mgmt. J., 31: 413–437 (2010)