Teaming Up for Sustained Performance: A Repeated-Game Model of Voluntary Horizontal Collaboration

41 Pages Posted: 16 May 2015

See all articles by Changrong Deng

Changrong Deng

Duke University - Fuqua School of Business

Saša Pekeč

Fuqua School of Business, Duke University

Jing-Sheng Jeannette Song

Duke University - Fuqua School of Business

Date Written: May 1, 2015

Abstract

This paper presents a model to characterize the dynamics of and rationale for voluntary horizontal collaborations commonly seen in global supply chains and organizations. Examples of such collaborations include supply clusters, supplier alliances, and teams of peers within organizations. The model consists of two key elements. One is a repeated game framework that captures the dynamics of the underlying environment, such as the long-term interactions between individual players who have limited capabilities and face uncertain demand. The second element is a peer help mechanism, which articulates the implicit short-term cost and long-term benefit of team production and generate synergies among the players. Our analysis shows that the emergence of horizontal collaborations depends on the difference between the individual players’ productivity levels, players’ patience, and the prevalence of high performers on the team. We also show that equilibrium team size is determined by the cost/technology structure of the collaboration, which varies depending on what kind of asset (e.g., inventory or capacity) is shared. We further extend the model to a principal-agent framework, in which the principal can benefit from forming teams of agents but cannot enforce or monitor whether peer help occurs. Finally, we characterize the optimal compensation and team structure for the principal to assign agents to teams.

Keywords: sustainability, horizontal collaboration, team formation, global supply chain, repeated games

Suggested Citation

Deng, Changrong and Pekeč, Saša and Song, Jing-Sheng Jeannette, Teaming Up for Sustained Performance: A Repeated-Game Model of Voluntary Horizontal Collaboration (May 1, 2015). Available at SSRN: https://ssrn.com/abstract=2606399 or http://dx.doi.org/10.2139/ssrn.2606399

Changrong Deng

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Saša Pekeč (Contact Author)

Fuqua School of Business, Duke University ( email )

Jing-Sheng Jeannette Song

Duke University - Fuqua School of Business ( email )

100 Fuqua Drive
Duke University
Durham, NC 27708
United States

HOME PAGE: http://people.duke.edu/~jssong/

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