A Study On The Cooperative Effect Of Enterprises Participating In Competitive Strategic Alliances Based On Network Externalities

With market competition becoming ever fiercer, firms tend to cooperate with their rivals instead of pure competing each other through establishing strategic alliances, namely competitive strategic alliances. Scholars analyzed competitive strategic alliances from different perspectives, most of which were focusing on inner issues of alliances, and little attention were paid on the external environment. However, from System Theory's point of view, external environment will inevitably take effect on the establishment and operating effects of alliances, thus it is necessary to study competitive alliances from the external environment. So focusing on competitive alliances within industries featured by network externalities, by applying methodologies of qualitative analysis, mathematical modeling, case study etc., we studied the impact of key industrial factors, including network externality strength, user's installment base, and product compatibility, on the motivation and cooperative effect of firms'participation in competitive alliances.This paper made efforts in the following three aspects. First, we collected literature for theoretical research, and pointed out the market mechanism of how network externality working on competitive alliances. Second, we analyzed the motivation of firms participating in competitive alliances under a network externality environment, and verified the motivation and cooperative effect by applying mathematical models. Third, by case study, this paper assessed cooperative effect and motivation that competitive firms participating in strategic alliances under network externality environment.Through the above-mentioned study, this paper reached the following conclusions: First, in industries with network externality, firms have obvious motivation to establish the cooperative relationship with competitors, namely competitive alliance, which includes motives to gain users'installment base, to get market share, and to promote the profit-making ability, etc..Second, in a competitive market, firms taking part in competitive alliances would gain better profits. Further, the larger the user base, the greater the profit firms would gain when participating in the alliance. The cost boundary when taking part in competitive strategic alliance is positively correlated to network externality strength and the base of the user to install. Third, by applying two case studies in the industry with network externality, this paper verified the mathematical model results, that is, the enterprise has the motivation of building competitive alliance under the network externalities environment, which makes good alliance results.The contribution of this paper lies in the studying about cooperative effect and motivation that competitive firms participate in strategic alliance under network externality environment by using the method of mathematical model, and to in depth analyze the impact of network externality on cooperative effect and the cost boundary of firms participating in the strategic alliance. Thus, according to the results of this paper, it is reasonable for firms under network externality environment to establish competitive strategic alliance, which could help them gain competitive advantage, to reduce risks of market competition, and to stimulate long-term development.