Creating Profit Through Alliances - business models for collaboration E-book | Page 64
make sense for Company A to form a network with
two other parties (B and C), and that there two
important negotiating factors, namely the distribution
of profit and the number of board members to be
appointed per party. A now has the options of:
concluding an agreement with one of the
parties, and then to invite the third party to join;
to enter negotiations with both parties at once;
to wait to be asked by B and C jointly.
Figure 25 schematically represents the negotiating
process. Points A, B and C indicate the ideal outcomes
for each of the parties in terms of the two
negotiating factors (plotted horizontally and
vertically). The circles indicate their negotiating room.
If A and B first negotiate together, they will arrive at
point 1. If they then involve C, negotiations start from
this point and end up at point 2. If all parties start
negotiating from the start, equilibrium is reached at
point 3. This is more advantageous for C than point 2.
Therefore, it is to A and B's advantage to take the
initiative.
First A and B, then C
B
A
2
3
C
B
Figure 25. Different order of events in forming a
network between companies A, B and C
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It is often less worthwhile for a market leader to join
a network, certainly if this party is technologically
ahead of the rest. Suppose that a leading company as
TomTom were to join a network of navigation
equipment providers working together to improve
the availability of road network information. TomTom
would then immediately lose the advantage of
having its own Internet platform to report road
situation changes. Moreover, as a late entrant it
would not have much extra negotiating power, and
thus not obtain a larger share of the profit.
A, B and C simultaneously
A
1
Still, it appears that this does not always apply. As
soon as C's ideal position approximates the
compromise between A and B (point 1), then it is
advantageous to become involved at a later stage.
This also makes sense intuitively: in order to get C on
board, A and B can make concessions relatively easily
while still remaining clearly within their negotiating
room.
C