The Alliance Formation Puzzle And Capacity Constraints

The formation of an alliance in conflict situations is known to suf-fer from a collective action problem and from the potential of internal conflict. Alliances are very common in many applications that constitute contests or tournaments, including mil-itary conflict, R&D tournaments, lobbying and political campaigning. But, alliance formation involves severe strategic disadvantages that make them undesirable under a wide range of circumstances if the members of the alliance can join and coordinate their ef-forts when fighting against an external enemy, but behave non-cooperatively vis-a-vis each other. The authors show that capacity constraints on effort can make such a non-cooperative alliance between equal alliance members profitable for its members, compared to the grand contest in which all players compete simultaneously in one single stage.