Sensitivity of Alliance Termination to Prealliance Conditions: Expectation Effects of Alliance Partners

Alliances are formed according to firms’ expectations about postalliance value generated by partners, which are based on certain conditions during the processes of selecting a partner and forming an alliance (i.e., the prealliance conditions). This study predicts that alliance terminations are likely to occur when such expectations are not satisfied, which is likely when partners’ postalliance characteristics are inferior to their prealliance levels, or when firms have heightened expectations of alliance partners because they have forgone superior potential partners before alliance formation. Results of an analysis using data of codeshare alliances in the global airline industry show that alliance termination results from reduced market complementarity or a reduced number of common partners relative to prealliance levels, and from the presence of not-chosen prealliance potential partners characterized by high market complementarity or large numbers of common partners. The results also show a general propensity for these effects to diminish as alliance duration increases.