International Marketing Alliances and Cooperative Games: An Application to the Oil and Airline Industries

Abstract

Using constructs developed by Matthews (1994, 1996, 1997; Matthews and Korolev, 1997), alliances are seen in terms of cooperative games (Fudenberg and Tirole, 1993; Myerson, 1991;Von Newnann and Morgenstern, 1944) and bilateral monopoly (Stigler, 1966; Myerson and Satterthwaite, 1983). The paper is part of an interdisciplinary research programme in complexity, the evolution of industries and firms, statistical mechanics, and games. The theory is applied a marketing alliance between an oil major and an international airline, in a situation ofbilateral monopoly, with decreasing costs Spencer (1997). The evolution of firms is seen in terms of coalition behaviour. The alliance described, at an airport in the UK, is a partial merger of selected marketing assets; an into plane operation. Managers in the oil company anticipate losses from having to accept of a return below average cost in the into plane operation. Losses might be considered as sunk costs (Sutton, !995), incurred in order to buy the option of enhancing the oil company’s share in a second stage of the alliance, when managers anticipate full equity partnership, in a new firm, whose business is the into plane operation.