Teaming Up for Sustainable Performance: A Game-Theoretic Model of Voluntary Horizontal Collaboration

(Authors ’ names blinded for peer review) Motivated by the observation of the existence of various forms of horizontal collaborations in global supply chains, we employ a repeated game to model the team dynamics (e.g., the formation of supply clusters, supplier alliances, and teams within organizations) and analyze the implicit incentives for peer help in teams. Such implicit incentives involve the consideration of the tradeoff between the short-term cost and long-term benefit: while it is costly for high performers to help low performers in any given period, the former may expect to obtain reciprocal help in future periods when they could become low-performing. We identify conditions for costly peer help to emerge in an equilibrium. We show that the equilibrium team size is determined by the cost/technology structure of the collaboration, which varies depending on what kind of asset (e.g., inventory or capacity) is shared. We also extend the model to a principal-agent framework, in which the principal can benefit from forming teams of agents but cannot enforce or monitor whether peer help occurs. We characterize the optimal compensation and team structure for the principal to assign agents to teams. Our study of peer help thus highlights the experience of and provides managerial guidance on achieving sustainable individual performance and overall superior performance