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When Friends Become Competitors: The Design of Resource Exchange Alliances

Author

Listed:
  • So Yeon Chun

    (McDonough School of Business, Georgetown University, Washington, DC 20057)

  • Anton J. Kleywegt

    (School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332)

  • Alexander Shapiro

    (School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332)

Abstract
Many carriers, such as airlines and ocean carriers, collaborate through the formation of alliances. The rules of alliances are important for both the stability of the alliance and the profitability of the alliance members. In this paper, we address the design of resource exchange alliances, a type of alliance agreement widely used in practice, especially in the ocean cargo industry. Resource exchange alliances often increase competition among alliance members since the members can sell substitutable products after the exchange. We propose a resource exchange model that takes into account the resulting competition and alliance profit allocation among alliance members. The problem of determining the optimal amounts of resources to exchange is formulated as a stochastic mathematical program with equilibrium constraints (MPECs). Although MPEC problems are, in general, very difficult to solve, we successfully demonstrate an efficient solution approach and provide valuable insights for the resource exchange design problem. In particular, we show that the resource exchange alliance we propose can induce greater profit for the alliance members (both total and individual profits) even though it leads to greater competition.

Suggested Citation

  • So Yeon Chun & Anton J. Kleywegt & Alexander Shapiro, 2017. "When Friends Become Competitors: The Design of Resource Exchange Alliances," Management Science, INFORMS, vol. 63(7), pages 2127-2145, July.
    • Handle: RePEc:inm:ormnsc:v:63:y:2017:i:7:p:2127-2145
    DOI: 10.1287/mnsc.2016.2434
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    References listed on IDEAS

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