Australian Journal of Basic and Applied Sciences, 5(11): 1731-1741, 2011 ISSN 1991-8178 Corresponding Author: Mehdi fadaei, Department of Industrial Management, Science and Research Branch, Islamic Azad University, Tehran, Iran. E-mail: fadaei@iaurasht.ac.ir; Tel: +989111344531; Fax: +981317759098 1731 A Game-Theoretic Approach to Knowledge Sharing between Suppliers A Case Study in the Iranian Automotive Industry (SAIPA) Jamshid Nazemi, Seyed-Mohammad Seyed-Hosseini and Mehdi Fadaei Department of Industrial Management, Science and Research Branch, Islamic Azad University, Tehran, Iran. Abstract: Knowledge management literature emphasizes the importance of knowledge as a valuable asset for firms. Although knowledge has been studied from several perspectives, this paper highlights the efficient sharing of knowledge as a way of creating core competencies in the firm. This perspective mainly focuses on the analysis of attributes that should provide the resources for generating a competitive advantage. We have two objectives. One is to examine that if a supplier’s perceived payoff of sharing knowledge is contingent on the knowledge sharing behavior of other suppliers. The other objective is to analyze the perceived payoff of knowledge sharing and determine if it can be characterized by an archetypical game in the game theoretic model. An empirical study was conducted among nearly 124 suppliers in a local automotive supply chain (SAIPA Company, IRAN). The scope was confined to the supplier’s willingness to share knowledge between other suppliers in SAIPA supply chain. The results indicated that the supplier’s perceived payoff sharing knowledge was contingent on the knowledge sharing behavior of other suppliers. Furthermore, the perceived payoff of knowledge sharing among them could be characterized by a multi-person assurance game. In conclusion, discusses some implication for managers who aim to effective knowledge sharing in their supply chain to acquire sustained competitive advantage. Key words: Knowledge sharing, Game theory, Supplier. INTRODUCTION No single organization can rely only on internal knowledge resources. In recent years, inter-organizational knowledge sharing has received increasing attentions by researchers and practitioners (Easterby-Smith, et al., 2008; Hau and Evangelista, 2007; Van Wijk, et al., 2008; Seyyedeh and Daneshgar, 2010). In a knowledge economy, effective sharing of knowledge makes businesses function more effectively. According to a recent study, transfer and sharing knowledge between supply chain partners across borders helps make the participating parties benefit and prosper through mutual cooperation. Thus knowledge sharing between supply chain partners can be both fruitful as well as threatening. Many of organizational relationships have been created to transfer knowledge however with different intensities, directions and purpose. In supply chain relationship, knowledge sharing is not explicitly defined as the main target by the supply chain partners and it usually takes place informally and spontaneously (Seyyedeh and Daneshgar, 2010). The major stuff of information shared by companies include of data on production planning, cost, demand forecasting, inventory levels, sales and prices. Other more valuable chunks of information are know-how, managerial and communication skills. Inter-organizational knowledge sharing can prove to be a worthwhile exercise only when it is a joint activity between supply chain partners in which every party attempts to create more value together than what they would be able to create individually. For example, suppliers must ensure that only the right type of knowledge moves between them. This exchange of knowledge between the suppliers does not occur simply. Successful supplier integration requires processes that facilitate the use and transfer of knowledge across functional and organizational boundaries (Lawson, et al., 2009). Sharing knowledge between suppliers can help in problem solving by better decision making, increased manpower efficiency, Faster response to market changes, increased organizational productivity and improving manufacturability (Takeishi, 2001; Steensma, et al., 2005; Tsai. 2001; Yli-Renko, et al., 2001; Zahra, et al., 2000; Lane, et al., 2001). Supplier's partnership in supply chain is a special type of inter-organizational relationship that is highly knowledge intensive and for this reason the current paper only focuses on this kind of inter-organizational relationship. Knowledge plays an essential role in competition. They would obtain great benefit, if suppliers could own the knowledge that in rare and important. That is, once if they share their scarce knowledge, their knowledge would be lost and benefit would also be damaged (Yang and Wu, 2008). In this case, why would suppliers share their specific knowledge with others? However, there are still gaps in our understanding of why and when knowledge sharing occurs between them. For this reason, this paper seeks to advance understanding on knowledge sharing by carrying out an empirical study that uses the game-theoretic framework. It has two objectives. One is to investigate if a firm’s