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Bounded Momentum in the Formation of Strategies: the Case of Alliances

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Document pages: 36 pages

Abstract: Building on the literatures on strategic momentum and interfirm cooperation, we develop and test a model of alliance formation that incorporates the distinction between alliances encompassing different corporate functions. We theorize that differences in functional purposes shape the learning and coordination effects that generate type-specific bounded momentum, where in the case of alliances bounded momentum refers to the pattern whereby past alliances encourage new alliance formation up to some point and discourage it beyond that point. We predict that the bounded momentum effects will arise at the firm and industry levels, and that their strength will depend on whether a new alliance involves the same function as previous alliances. Empirically, we examine the successive alliances formed by 32 international airlines through 1994. We find that a firm s past production (marketing) alliances create bounded momentum for its subsequent production (marketing) alliances but not for its subsequent marketing (production) alliances. We also present results about the bounded momentum generated by other firms alliances. The study sheds light on the dynamics of alliances at multiple levels of analysis, and on firm and industry effects in corporate strategy. We discuss implications for research on other forms of strategic actions too.

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