Reputation for cooperation: contingent benefits in alliance activity

• Published in: Strategic management journal Vol. 30; no. 4; pp. 371 - 385
• Main Author: Arend, Richard J.
• Format: Journal Article
• Language: English
• Published: Chichester, UK John Wiley & Sons, Ltd 01-04-2009; John Wiley and Sons; Wiley Periodicals Inc
• Subjects: alliance; Alliances; Business management; Business reputation; Business structures; contingent benefits; Cooperation; Corporate strategies; Experimentation; Game theory; Games; Management science; Opportunity costs; Prisoners; Reasoning; reputation; Reputations; Studies
• ISSN: 0143-2095; 1097-0266
• DOI: 10.1002/smj.740

We model the two-firm alliance as an iterated prisoners' dilemma game with an exit option and test several theoretical predictions in experimental studies regarding the effect of reputation information. Following the literature, we hypothesize that reputation benefits cooperation; however, our experimental results instead show that reputation decreases cooperation. A contingency explains this result while remaining consistent with the general proposition of reputation as beneficial in games of incomplete information. Implications include a recommendation for when to invest in reputation and whether the lemon's market story is applicable to alliance-related inefficiencies.