Alliances and Technological Partnerships in Contests

ABSTRACT This study analyses the formation of alliances and technological partnerships in contests. Alliances enhance the probability of winning at the cost of sharing the prize if won, while technological partnerships reduce the marginal cost of the effort invested in the contest by the members. When agents exhibit extreme free‐riding behaviors at equilibrium, the stabilization of the grand alliance by technological cooperation requires players to be able to block any deviation in the alliance structure involving their technological partners. Nevertheless, when the agents manifest fewer free‐riding intentions, the threat of being excluded from a global technological partnership is sufficient to ensure the stability of the grand alliance in the long run. When exclusions are possible, global cooperation in technology between agents in a situation with limited free‐riding behaviors between partners can completely annihilate competition in the contest. This indicates that free‐riding behaviors hinder the stabilization of the grand alliances in contests. As no alliance structure is stable when the agents cannot form any technological partnership, these findings highlight that the existence of technological coalitions is a facilitating factor for the formation of alliances in contests.