Paradoxical Effects of Alliances on Firm Growth: U.S. Airline Alliance Network and the Size of Directly-Covered Markets

This paper examines the paradoxical effects of alliances on the size of the market that a firm directly covers in-house. We argue that alliances may serve as a basis for the growth of directly-covered market or as a substitute for it due to two different functions of alliances as enablers and constraints for market expansion. Focusing on the distinction between multilateral alliance groups and bilateral alliances, we argue that the size of a firm’s directly-covered market is affected differently by the two types of alliances. Through empirical analysis of U.S. airline industry, we found that a focal firm’s membership to a multilateral alliance group negatively affects the size of its directly-covered market, whereas the structural holes of a focal firm’s position in its bilateral alliances have a positive effect. Furthermore, environmental threat turned out to weaken the positive effect of structural holes on the size of directly-covered market.