Utilizing Williamson's transaction cost economics, this paper provides a theoretical framework to analyze the formation of strategic alliances and the stability of these alliances. A strategic alliance is an inter-firm relation that lies between ”market” and ”hierarchy”. Strategic alliances will be formed when the cost of using either market or hierarchy is higher. After providing the analytic framework, this paper discusses two types of strategic alliances-”market/technology” and ”technology/technology”, and the unstable sources of these two types. For the former type, ”asset-specificity” and ”small-number bargaining” are possible unstable sources. ”Free rider” is what should be concerned for the latter.