Alliance Formations With Joint Sustainable Technology Innovation Efforts

We study a supply chain comprising a downstream retailer and multiple complementary suppliers. Suppliers can form coalitions to jointly invest in sustainable production technologies and enhance the product’s corporate social responsibility (CSR) level. Coalition members benefit from efficiency gains through shared knowledge and information about green production. The retailer sources from these coalitions and sells the product to heterogeneous consumers. We develop a game-theoretical model and use the notion of Nash stability to characterize equilibrium coalition structures and firms’ optimal decisions under three profit allocation rules. Our key findings are as follows: (a) Forming supplier coalitions can benefit all stakeholders (including the retailer, suppliers, and society) but achieving such a win–win–win outcome hinges on two factors: the market’s consciousness rate (i.e., the proportion of socially conscious consumers) and the efficiency gains from coalition formation. (b) The grand coalition that maximizes the retailer’s profit and CSR level is not always stable due to free-riding behaviors. In particular, less efficient suppliers may defect to avoid the cost of sustainable innovation while still benefiting from the high innovation efforts of others (i.e., cross-coalition free-riding). (c) On the supply side, adopting the Shapley value allocation rule exacerbates within-coalition free-riding by assigning greater profit shares to less efficient suppliers. However, it also reduces their incentive to defect, thus enhancing coalition stability. Moreover, greater total efficiency and a smaller efficiency gap among suppliers further improve the stability of the grand coalition. (d) On the demand side, the impact of increasing the market’s consciousness rate is non-monotonic. Improperly influencing consumer awareness may destabilize coalitions and produce unintended consequences, suggesting that the retailer must proceed with caution.