On cooperation between enterprises with a supply chain alliance

A supply chain alliance is formed by a number of independent entities within a value chain to better cope with the contemporary competitive and cooperative market conditions. In an effort to strive for the maximum added value, each enterprise in the alliance contributes their core competencies in their areas of strength respectively. This paper applies game theory to set up a two-stage dynamic game model between aligned and non-aligned enterprises to discover the correlation between the number of member enterprises and the overall profit made, as well as the potential impacts that incurred costs exert on profitability over time. The results show that: the enterprises which take the lead in establishing the alliance enjoy a significant growth in profit, which stimulates formation of alliances amongst other enterprises in the market; although as the number of alliances formed increases and aligned enterprises cut costs thereafter and profits decline proportionately in turn as a result, nevertheless, profit figures are still at a level above those of non-aligned enterprises.