Strategic positioning of alliances

Stephanie Rosenkranz*, Utz Weitzel

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

In this paper we use a simple linear demand structure to analyze firms' and alliances' strategic positioning with regard to cost reduction and product differentiation. In particular, we compare investment decisions under competition and in alliances and analyze comparative static properties concerning changes in market size. In contrast to Porter (1980), this model explicitly allows firms to allocate their budget between the two strategies. The analysis reveals that the optimal allocation of resources for strategic positioning changes markedly when a firm enters an alliance: the general investment level decreases with a shift towards more cost reduction and less product differentiation. Another finding is that alliances (as well as independent firms) in larger markets invest more in both strategies and investment is driven towards product differentiation. These results are in line with Klepper's (1996) findings as they show that the attractiveness of following cost leadership or differentiation strategies changes through industry evolution.

Original languageEnglish
Pages (from-to)135-149
Number of pages15
JournalInternational Journal of the Economics of Business
Volume14
Issue number1
DOIs
Publication statusPublished - 1 Feb 2007
Externally publishedYes

Keywords

  • Alliance
  • Competitive strategy
  • Cost reduction
  • Game theory
  • Innovation
  • Product differentiation
  • Strategic positioning

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