Keeping Your Enemies Closer: When Market Entry as an Alliance with Your Competitor Makes Sense

We present an analytical framework of multimarket competition and supporting empirical analysis to explain why and when competing firms in an existing market may prefer an alliance entry over independent entry into a new market. Our findings suggest that an alliance entry is more profitable than an independent entry (i) when the new market is larger relative to the existing market, and (ii) when the competition in the existing market is stronger relative to the new market. We compare these key predictions with archival data from the regional shopping center industry in the United States and find that instances of alliance formation in this industry are consistent with our model-based predictions.