Abstract: Given the payoff structure containing the internal and external benefits of alliance, this paper analyzes the firms' behavior strategies, investigates the influence of marketing environment, management cost, and the alliance experience on the firm's behavior and governance mechanisms, by leveraging dynamic game theory. The research results indicate that the future expectation and the past experience of knowledge exchanging have a significant impact on the behavior strategies of the alliance participants, and the strategies determine the benefits and evolvement of the corresponding alliance. Therefore, when the management cost of knowledge protection increases, the participants are likely to abandon the protection mechanism and speed up sharing knowledge. When the coordination cost grows, the participants are more likely to abandon the coordination mechanism and speed up exiting the alliance. As the determinant of knowledge sharing benefits, the marketing environment and the management cost of knowledge sharing have influence on every behavior decision and governance mechanism choice in the process of alliance. Furthermore, it is important to maintain the symmetrical knowledge payoff between the two participants of the alliance. Otherwise, it would result in a loss of the firm that transfers knowledge and incur a failure of the alliance.

Key words: knowledge exchange, management cost, behavior, governance mechanism