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6 Structure, Affect and Identity as Bases of Organizational Competition and Cooperation

January 2008
The Academy of Management Annals 2(1):275-303

January 2008
2(1):275-303

DOI:10.1080/19416520802211578

Authors:

Columbia University

Competing organizations are often defined by their niche overlap or structural equivalence in resource dependence, but the very structure that defines competitors can also identify cooperators. There is a fine line between competition and cooperation, but current theories give insufficient guidance as to which will take place and also contribute to the belief that cooperation between competitors is illegitimate. We show that the legitimacy of these practices, as well the evaluation of their welfare implications, are context bound. Individuals and societies that have been influenced by different theories of competition could reasonably (and have) reach different conclusions as to the legitimacy of competitor cooperation. We then critique extant ideas as to when competitors will cooperate, which rely on industry structure, and suggest instead that perception and social identity are more important in tipping the cooperate-compete balance. We conclude by showing how our arguments inform an important current stream of management research, on the process of institutional change.

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The Academy of Management Annals

Vol. 2, No. 1, 2008, 275–303

275

ISSN 1941-6520 print/ISSN 1941-6067 online

DOI: 10.1080/19416520802211578

http://www.informaworld.com

Structure, Affect and Identity as Bases of

Organizational Competition

and Cooperation

PAUL INGRAM

Columbia Business School

LORI QINGYUAN YUE

Columbia Business School

Taylor and FrancisRAMA_A_321324.sgm10.1080/19416520802211578Academy of Management Annals1941-6520 (print)/1941-6067 (online)Original Article2008Taylor & Francis21000000August 2008PaulIngrampi17@columbia.edu

Abstract

Competing organizations are often defined by their niche overlap or structural

equivalence in resource dependence, but the very structure that defines compet-

itors can also identify cooperators. There is a fine line between competition

and cooperation, but current theories give insufficient guidance as to which will

take place and also contribute to the belief that cooperation between competi-

tors is illegitimate. We show that the legitimacy of these practices, as well the

evaluation of their welfare implications, are context bound. Individuals and

societies that have been influenced by different theories of competition could

reasonably (and have) reach different conclusions as to the legitimacy of

Corresponding author. Email: pi17@columbia.edu

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competitor cooperation. We then critique extant ideas as to when competitors

will cooperate, which rely on industry structure, and suggest instead that percep-

tion and social identity are more important in tipping the cooperate–compete

balance. We conclude by showing how our arguments inform an important

current stream of management research, on the process of institutional change.

Introduction

A common definition of competitors is actors who share an interest in some of

the same resources. In other words, competition derives from occupying simi-

lar positions in resource space. There is broad agreement on this structural

model of competition, even between scholars who approach the issue from

economic versus sociological traditions. There is also a concise set of

approaches for identifying structural similarity, which can be ordered in terms

of the precision in the representation of organizations’ resource requirements.

The coarsest approach is to identify competitors according to broad types,

where the types are often called industries or populations. The second

approach breaks down industries and populations into smaller, more similar

groups on criteria such as location, strategy and organizational form. The

third, most refined approach moves away from categorization and examines

the pattern of resource reliance of organizations more directly. The first stage

of this paper outlines these popular treatments of competition.

We next argue that the same structural conditions that seed competition

also present opportunities for cooperation. As Barnett (2006, p. 1753) puts it,

“rivals are also roommates”. This admits a troubling indeterminacy in the

relationship between the structural position of organizations and the level of

competition between them. Similarity in resource space might lead organiza-

tions to harm or help each other. Put bluntly, the frameworks that economists

and sociologists have built on the foundational idea that structural similarity

equates with competition are shaky.

How is it, then, that various management theories have converged on

structural similarity as the key antecedent of competition when that anteced-

ent seems as likely to bring cooperation? We think this is at least partly due to

the fact that various theories have attributed positive outcomes to competi-

tion as opposed to cooperation between similar organizations. The economic

view of competition derives from the welfare-enhancing assumptions of the

theory of perfect competition, where resources are used most efficiently when

competition is greatest. A kindred sentiment is embedded in sociological

theories that build on the ecological principle that competition increases the

speed at which fit forms come to dominate those that are less fit. These

currently influential theories provide normative backing for the idea that

structurally similar organizations should be autonomous and hostile to each

other. We show, however, that this is a context-specific rather than transcen-

dent idea. Comparisons between economic systems across time and space

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reveal that hostility between structurally similar organizations is not the natu-

ral order, and also suggest that cooperation between potential competitors

may lead to fair and productive economic systems. Other analysis suggests

that the evidence in favor of current models of competition is self-fulfilling, a

function of the diffusion of those models, rather than a reflection of the

real world.

If the sole focus on structural relationships cannot determine competition

or cooperation, what does? We believe that perception and social categoriza-

tion play this role, and that these are feasible targets of strategic manipulation

by entrepreneurs who would benefit from cooperation (or competition)

between structurally similar actors. The balance between competition and

cooperation shifts on these cognitive processes rather than objective relations

to resources. We conclude by applying these ideas to help understand inter-

organizational relations in the context of an important research topic in

management, institutional change.

Structural Approaches for Identifying Competition

Populations and Industries

Competition between organizations and other actors emerges because of a

shared reliance on the same resources. Organizational ecologists identify the

condition of “niche overlap” as the basis of competition (Hannan & Freeman,

1989), meaning simply that a set of organizations rely on some of the same

resources for founding, growth and survival. The ecologists’ empirical strategy

for identifying competition derives from population biology’s

Lotka-Volterra

equations, which assume that the carrying capacity of a focal population (its

number of members in equilibrium) is a negative function of the density of a

competing population (the count of its members). In terms of types of organi-

zations, this is evidenced by a negative impact of the density of one type on the

founding and growth, or a positive effect on the rate of failure, of another type.

This type of cross-population analysis is not the norm in empirical work, but

it is not uncommon: craft unions impinged on industrial unions (Hannan &

Freeman, 1989); Israeli moshavim (collectives of smallholder farms) impinged

on kibbutzim (communal farms) (Simons & Ingram, 2004); Danish organiza-

tions were less likely to be founded if they used the same types of workers as

other industries (Sorensen, 2004).

A kindred and more common application of the ecological approach to

identifying competition is the theory of density dependence, which examines

the influence of a population’s density on its own founding, failure and

growth rate. The argument is that competition within a population rises with

density as more organizations pursue the same resources, and that competi-

tion reduces founding and growth and increases failure (Carroll & Hannan,

2000). There are literally dozens of empirical findings that support the compe-

tition element of the theory of density dependence (Baum, 1996).

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The ecological procedure of looking for competition within organizations

of a population is similar to the typical earlier practice in industrial econom-

ics, where competitors were seen as organizations in the same industry, or

organizations that serve the same market (Scherer, 1980). These scholars

conceive of industry structure as a central determinant of organizational

performance. Porter’s (1980) five forces model captures the insights of this

field as they are typically employed by management scholars. In this model an

industry is regarded as more competitive if it is closer to the theoretical idea of

perfect competition—a large number of firms, relatively homogenous prod-

ucts, low market concentration, and low entry and exit barriers.

Sub-Population and Sub-Industry Groups

Researchers in both the industrial economics and ecological tradition at some

point moved beyond the obvious simplification of categorizing all organiza-

tions in a population or industry as facing the same competitive pressure. A

number of approaches consider heterogeneity in competitive intensity for

different organizations that may still fit a given industry or population label.

In other words, research has gone on to recognize that the broad categories of

industry and population are made up of sub-groups. The basic premise, that

organizations of the same type compete more intensely, has been applied to

these sub-groups.

The most prominent differentiation of subgroups within organizational

ecology is according to the theory of resource partitioning. This theory begins

with what is an anomaly for theories of non-differentiated competition within

an industry. In many contexts, as the concentration of an industry increases

(that is, as more market share is accounted for by a small set of large organiza-

tions) the number of small organizations also increases. Concentration is an

indicator of the advantage and dominance of very large organizations, and it

strains the undifferentiated view that both larger and smaller organizations

appear to thrive at the same time. The theory of resource partitioning

responds to this apparent anomaly by recognizing the fundamental categories

of generalists and specialists, and arguing that they have distinct patterns of

resource utilization (Carroll, Dobrev, & Swaminathan, 2002).

Generalists, according to the theory, occupy the “center” of the resource

distribution, where there is the greatest concentration of consumer prefer-

ences. These organizations take advantage of economies of scale and offer a

product that appeals to the modal consumer. The archetypal example in the

literature is the mass-market producer of beer (Carroll & Swaminathan,

2000). Specialists occupy less-central places in the resource distribution, away

from the center, and where the products offered by the generalists are less

appealing. Resources are indeed scarce in this periphery, but they may be

sufficient to support small organizations that have high appeal to some

consumers. The archetypal example is the microbrewery, which produces an

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unusual beer on a small scale. The process of concentration, where generalists

increase their dominance over the center of the resource distribution, actually

frees up resource space on the periphery for specialists. Evidence for these

ideas has been found in a number of industries, including newspapers,

breweries, wineries and automobile producers (Carroll, 1985; Carroll &

Swaminathan, 2000; Dobrev, Kim, & Carroll, 2002; Swaminathan, 1995).

Other within-industry or population distinctions have also been used to

identify more intense pools of competition. The most common of these

distinctions is geography, where organizations within an industry or popula-

tion that are in the same city or region are characterized as closer competitors.

Often, co-location distinguishes organizations that may compete more

intensely in input markets (e.g., for land or labor) while they face inter-

regional or national markets for their outputs (Ingram & Lifschitz, 2006;

Sorenson & Audia, 2000). Organizations in an industry or population may

also compete more intensely with others of the same organizational form. For

example, cooperatives in an industry may compete more intensely with other

cooperatives rather than corporations in their industry, because there are

some workers and consumers more willing to engage cooperatives than cor-

porations (Simons & Ingram, 2004). And chain organizations may compete

more intensely with other chains compared to independent organizations,

because chains’ offerings to the market have more commonalities (Ingram &

Baum, 1997). Still other studies identify competitive sub-categories within a

population according to political ideologies (Barnett & Woywode, 2004;

Simons & Ingram, 2004).

In the management literature derived from economics, the approach to

representing competitors by sub-industry groups is well represented by the

strategic group literature. Researchers here assume that organizations are con-

strained by mobility barriers and those in the same industry that adopt the

same or similar strategies form strategic groups (Hoskisson, Hitt, Wan, & Yiu,

1999; Peteraf & Shanley, 1997). In this way, industry is no longer viewed as a

homogeneous unit, but an agglomeration of diverse strategic groups. In some

ways this approach to competition has been most explicit about the concern

we raise in this paper—that structural similarity may seed either competition

or cooperation (Smith, Grimm, & Wally, 1997). This literature has also

pointed as we do to perception as key to tipping the balance between compe-

tition and cooperation. As Hoskisson et al. (1999) argued, “the fundamental

question is whether firms are actually

aware

of their mutual dependence

within their particular groups” (p. 427; our emphasis).

Resource–Space Overlap and Structural Equivalence

While the own- and cross-density effects at the population are consistent with

the niche overlap arguments of competition, more direct evidence comes

from McPherson (1983). McPherson operationalizes niche overlap between

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voluntary associations by the degree of demographic overlap among the

members they aimed to attract. Thus, niche overlap, at least in terms of par-

ticipants, was measured directly rather than simply inferred from a density

coefficient. This niche overlap measure was correlated with the negative

influence of organizations on each other’s growth. Baum and Singh (1994)

pursue a very similar approach in estimating competition between Toronto

daycare centers as a function of the overlap in the ages of children that they

accepted. A larger set of papers used the logic that more similar organizations

are likely to rely on similar resources, what has come to be called localized

competition. For example, Baum and Mezias (1992) show that Manhattan

hotels experienced more competition from other hotels that were similar in

location, size, and price.

Network analysis offers yet another approach for identifying structural

similarity as a basis for competition with the concept of structural equivalence.

Structurally equivalent actors are those that are the same or similar in terms of

relations to others. Two actors that occupy the same network positions have

access to the same resources from the network, and may therefore be closer

competitors. This idea is the foundation of network theories of competitive

advantage, which emphasize that unique structural positions are privileged

and sheltered from competition (Burt, 1992). Podolny, Stuart and Hannan

(1996) explicitly link the structural-equivalence concept to niche overlap by

using the overlap of patent citations by semiconductor firms as a measure of

competitive crowding. Ingram, Robinson and Busch (2005) use structural

equivalence in interstate networks as an indicator of competition in global

trade. Bothner (2003) operationalizes competition in the computer industry

using structural equivalence of firms through sales channels. And work from

industrial economics employs the structural-equivalence concept to measure

competition in network industries such as airlines (Borenstein, 1992).

In summary, a number of influential accounts hold that competition

derives from shared dependence on the same resources. Most macro evidence

for this position shows that organizations that seem to occupy the same niche

because they are of the same broad type exert negative influences on each

others’ performance. Others have refined this argument by applying it to

smaller groupings, showing that competition is greater between organizations

that are more similar, and which can be expected to use more of the same

resources. Subsequent studies have been able to explicitly measure niche over-

lap in terms of the demographics of target participants of organizations. Yet

another approach for identifying resource overlap is through overlap in

network position, what is called structural equivalence. Figure 6.1 shows the

basis of competition between two organizations as the overlap in the resources

they require, where resources can be broadly defined in terms of customers,

employees, endorsements, physical space, knowledge inputs, or anything else

necessary for their founding, growth, or survival.

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Figure 6.1 Niche Overlap Theory of Competition

Structural Opportunities for Cooperation

Figure 6.2 presents variants of Figure 6.1 and illustrates our argument that

cooperation as well as competition may derive from niche overlap. Case 1

presents the circumstance where organizations may find a basis for coopera-

tion because they compete in some areas, but not in others. We label this

symbiosis after Hawley (1950), because the basis of cooperation is the differ-

ences between organizations, particularly the differences in the resources they

require. Symbiosis is a common form of inter-organizational cooperation, but

it falls outside of our focus in this essay on cooperation that derives from the

same basis of competition. Nevertheless, we mention it in the interest of docu-

menting the full set of cooperative opportunities that derive from considering

niche overlap. In this case, apparent competitors may cooperate because they

are not really, or not completely, competitors. One influential niche-referent

theory that predicts symbiosis is Carroll’s (1985) resource partitioning model,

which suggests that generalists and specialists within the same industry may

co-exist and even stimulate each other. Other common examples are organiza-

tions that appear to operate in the same industry, but are really quite differen-

tiated, such as biotechnology firms and pharmaceutical firms that cooperate to

take advantage of the research and development capability of the former and

the marketing resources of the latter (McKelvey, Alm, & Riccaboni, 2003). Also

notable are peer industry networks (PINs) such as the one that Zuckerman and

Sgourev (2006) document among remodelers. PINs include small businesses in

the same industry and are motivated by the similarity of experience that

organizations in the same industry share, but they are organized around

companies that operate in different geographic markets and therefore are not

direct competitors.

Figure 6.1 Niche Overlap Theory of Competition.

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Figure 6.2 Niche Overlap and Opportunities for Cooperation between A and B.

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Figure 6.2 Niche Overlap and Opportunities for Cooperation between A and B

Growth Commensalism

Cases 2 and 3 illustrate our main interests, the opportunities for cooperation

between organizations that derive from niche overlap. If organizations

compete because they rely on the same set of resources, they may cooperate to

grow those resources or to exclude others from accessing them. Case 2 shows

the growth case. One obvious opportunity for competitors to “increase the

pie” is through collusion. In the next section we take up the cooperation

between competitors historically, and show that collusive arrangements have

often been more legitimate than they are currently in Western economies.

However, there are still plenty of legitimate opportunities for cooperation

between competitors, even in terms of maintaining prices. Ingram and

Roberts (2000) showed that Sydney hoteliers employed a form of tacit price

coordination that amounted to using social sanctions to penalize managers

who would cut their prices and thereby create trouble for their competitor/

friends at other hotels. This was not illegal, even though Australian anti-trust

law explicitly foresaw and outlawed informal price-fixing agreements (includ-

ing a “‘nod and wink’ understanding that can take place anywhere—in the

pub, on the golf course, or at an association meeting or social occasion”

[ACCC, 1997, sec. 1]). The difference is that in tacit price coordination, there

is no agreement to limit price competition. The mechanism through which

cooperation emerges is simply a norm against doing something that harms the

social group. Tacit collusion may also emerge without any communication or

social relations between competitors, simply through the mutual recognition

of self interest (Jacquemin, 1987).

Another well researched form of competitors cooperating to maintain prices

is mutual forbearance between firms that meet as competitors in multiple mar-

kets (Baum & Greve, 2001; Bernheim & Whinston, 1990; Boeker, Goodstein,

Stephan, & Murmann, 1997). This cooperation takes a form of log-rolling,

where two organizations that have differential stakes in two markets (each mar-

ket is key for one firm, secondary for the other) forego intense competition as

secondary competitors to allow the other to exploit its key market. Log-rolling

is also the route for some non-collusive forms of growth commensalism. For

example, the Sydney hoteliers referred customers to their friends’ hotels when

their own hotels were full. Given that friends reciprocated the practice, this

created a type of inter-temporary exchange that allowed hotels to smooth their

business and helped their customers at the same time.

Research and development (R&D) consortia are an emerging form of

growth commensalism, where competitors collaborate to share the research

outcome as well as the associated risk. The cost of R&D projects is often

beyond a single company’s affordability. The joint research consortium

encourages technology innovation by dispersing the cost of R&D across a

number of firms. The most renowned consortium is probably SEMATECH,

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the association of US semiconductor producers that formed in response to

Japanese competition (Grindley, Mowery, & Silverman, 1994).

Many other important non-collusive instances of growth commensalism

involve sharing knowledge. In fact, knowledge sharing is a particularly poi-

gnant illustration of our main thesis because it is organizations that are most

similar to you—your closest competitors according to niche overlap theory—

that are the best source of knowledge that is relevant to you. A number of

learning curve studies have documented learning from the operational experi-

ence of competitors (Baum & Ingram, 1998; Darr, Argote, & Epple, 1995;

Ingram & Simons, 2002). Ingram and Lifschitz (2006) show that collaboration

in R&D among shipbuilders on the Clyde River helped that area to obtain the

unofficial status of “shipbuilding capital of the world” in the late nineteenth

century. In a contemporary context, Almeida and Kogut (1999) argue that

Silicon Valley is advantaged among all locations of semiconductor research in

the USA by the degree of knowledge sharing among firms in the industry,

firms that would typically be characterized as competitors. Close competitors

often share the common knowledge stock that enables them to better under-

stand, evaluate, and internalize the know-how of each other. This is parallel to

the organizational learning theorists’ argument that “absorptive capacity” is an

important determinant of learning effectiveness (Cohen & Levinthal, 1990).

Other forms of growth commensalism can be captured by the label “build-

ing and protecting public goods”. In industries such as fishing, where there are

obvious “tragedy of the commons” problems, cooperation between competi-

tors is well documented. Holm (1995) writes about collective action in the

Norwegian fishery, and Johnson and Libecap (1982) document cooperation to

manage shared resources among Gulf of Mexico shrimpers. Medieval

merchant guilds acted as institutions to maintain trading standards, and thus

the collective reputation of a town’s sellers, just as professional associations do

currently (Greif, Milgrom, & Weingast, 1994). In corporatist economies like

Germany, employer associations represent competitors in an industry in

collective bargaining with labor. Also, early hotel chains in the USA cooper-

ated to establish the Cornell hotel school to provide the human resource that

they relied on to manage their establishments (Ingram, 1998). Industry

associations may help their members navigate the law, as when the Tobacco

Institute protected cigarette manufacturers from lawsuits and hostile regula-

tions (Miles, 1982).

Recently, corporate social responsibility is emerging as a prime stimulus

for growth commensalism, because the public has been increasingly con-

cerned about social problems like global warming, environmental protection,

sustainable growth, and fair trade. If firms in an industry depend on collec-

tive perceptions of the industry, they all face sanctions when one violates

expectations of social responsibility. Barnett and King (2006) termed this the

“reputational commons”. They found that all firms in the chemical industry

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shared sanctions from shareholders in response to an individual firm’s

accident. Evidencing the value of collective action in this circumstance, the

industry’s self-regulatory program, Responsible Care, was able to ameliorate

the industry-wide harm.

Exclusion Commensalism

Case 3, exclusion commensalism, refers to the instance where two (or more)

competitors may cooperate to protect the resources they jointly rely on from a

third competitor. Some of the instances we have given of growth commensal-

ism also have exclusionary elements. For example, in the absence of natural

barriers to entry, collusive arrangements between competitors will be success-

ful only if new entrants can be forestalled. And competitor cooperation to

manage public goods may also be motivated partly on exclusion. Dennen

(1976) shows how ranchers in the American west collaborated to run their

cattle on Federal land and excluded newcomers from the roundup. Many

examples of industry cooperation sharing knowledge and developing technol-

ogy can be characterized as the basis of advantage for a local industry over

some related industry elsewhere (Almeida & Kogut, 1999; Grindley et al.,

1994; Ingram & Lifschitz, 2006).

Organizations have also adopted various types of political strategies to

exclude competitors from their terrain. McWilliams, Fleet and Cory (2002)

provide numerous cases of the cooperation among incumbent firms to lobby

for enhanced market entry barriers or standards that they can meet more

easily than potential entrants can. Marvel (1977) documents how the large,

urban, steam-powered manufacturers promoted the passage of Lord Althorp’s

Factory Act of 1833 in Great Britain, which controls child labor use and

prohibits the employment of children less than nine years old in the British

textile industry. Through this legislation, the urban, capital-intensive manu-

facturers achieved the advantage over those small, rural, and water-powered

manufacturers who used significant child labor.

The two commensalistic cases are not equivalent—there is no competitive

exclusion at work in many efforts to build markets, protect the environment,

or negotiate with workers—but it is nevertheless useful to be alert to the

possibility that efforts to protect or grow the resources that competitors

depend on simultaneously involve excluding some other competitors from

those resources. The possibility of exclusion is also notable as it plays an

important role in the identity processes which we argue below are important

for tipping the orientations of resource-sharing organizations from competi-

tion to cooperation.

Deflating the Taboo against Cooperation between Competitors

Given the preceding listing of the ways that competitors may cooperate, the

obvious question is “when will they do these things?”. Before we turn to that,

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however, we give treatment to the question of “is cooperation between

competitors legitimate?”. As we explained in the opening of this essay, this

question confronts many empirical accounts of cooperation among competi-

tors. Indeed, scholars such as Barnett (2006) draw a firm line between

commensalism that aims to increase demand as opposed to restrict supply,

and legitimize the former by focusing analysis on it. Without advocating or

ignoring any public policy position, we aim in this section to show that the

opportunity for cooperation between competitors should not be seen as

dependent on weak or flawed anti-trust policies. It is true that many forms of

such cooperation are currently inhibited by anti-trust law, but we nevertheless

encourage a value-neutral view of both growth and exclusion commensalism.

Theories that emphasize competitor independence, particularly the

economic theory of perfect competition, have been so influential that they

have created a self-fulfilling dynamic to discourage commensalism. Inherent

in the theory of perfect competition is a Darwinian notion that competition is

a mechanism of efficiency, which is the basis of the privileged moral standing

of that relationship in contemporary debates. But organizational theorists are

well aware that the fittest do not always survive (Barnett, 1997), and in any

case, fitness in the economic realm is a social concept which is not always

applied to favor lower costs. In Manhattan, there is an active lobby against

retail concentration based partly on the argument that the practice reduces

competition and raises costs. Yet the same people who object to chain stores

are also likely to object to proposals to build new apartments in their neigh-

borhoods, an initiative which increases the supply of homes to the benefit of

buyers but also increases competition for those that already own homes. Even

among activists, then, attitudes regarding competition depend on whether you

are a buyer or a seller.

Again, we make no general claim regarding the welfare implications of

cooperation among competitors, but we want to deflate the assumption that

hostility between those that rely on the same resources represents some kind

of natural order. It is useful for this purpose to go back in economic history

and consider the circumstances before anti-trust laws took hold. Interestingly,

it is not necessary to go back very far, even in the two Anglo-Saxon economies

that are most associated with the influential theories of competition.

Consider Britain

Collusion had a murky legal status until the passage of the Restrictive Trade

Practices Act in 1956; before that point the relationships between business

organizations did not resemble pure competition. Cooperation took a variety

of forms, ranging from gentlemen’s agreements to formal associations coordi-

nated by specialized organizations. Firms organized cartels with other firms

operating within the same line of business and established board interlocks

with those connected by vertical exchange relationships. These cooperative

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networks controlled price, mitigated competition, and maintained existing

market structures. The cooperative network was not rare. As cited by Florence

(1953), the interlock relationship alone linked firms that employed as many as

one-third of workers in British midland metal and metal using industries in

1948. And while some economic historians attribute the industrial decline of

Britain to this system of “gentlemanly capitalism” (e.g., Hannah, 1976), others

see the seeds of Britain’s nineteenth-century dominance in the commensalism

that system entailed. For example, Ingram and Lifschitz (2006) present empir-

ical evidence that the decline of the once-great Clyde River shipbuilding

industry was attributable at least in part to institutional reforms, including

anti-trust law, that undermined the efficacy of positive relations between

competing shipbuilders. These changes may have helped some British buyers

of ships, but given that shipbuilding is a global industry, and the Clyde River

industry was replaced by foreign competitors at a direct cost of more than

100,000 shipbuilding jobs in Glasgow, it is hard to argue that the British

economy was helped by discouraging cooperation among competitors in this

instance.

Consider the United States

In the early age of American industrial development voluntary cooperation

between firms was widespread. As documented by Kolko (1965) in response to

market competition in the 1870s, American companies organized numerous

cooperative alliances to fix rates, maintain existing market share, and control

internecine competition. One cooperative pool was initiated in 1870 by the

existing railroad companies in the Iowa area in order to exclude new competi-

tors from entering their market. This type of cooperation was widespread. In

1874, William H. Vanderbilt of the New York Central organized a pool of

major lines in the East. In 1875, a number of southern railroads created two

cooperative associations. In 1876, seven major lines formed the Southwestern

Railway Association to maintain rates. Besides mitigating direct competition

with each other, railroad companies had also managed to cooperate in labor

management. In June and July 1877, these companies agreed to cut the wages

of railroad workers by 10% in response to an economic depression. Besides

railroads, cartels existed in a wide range of other industries, such as mining,

metals, paint, paper, lumber, and footwear (Schneiberg & Hollingsworth,

1989). In fact, the free market competition ideal did not become prevalent in

the USA till the end of the nineteenth century, when anti-trust law made

cartels illegal (Dobbin, 1999). Even then, the zenith of unbridled competition

in the USA lasted only a short time. By 1925, a number of Supreme Court

decisions had enabled trade associations to share operational and price data.

Carrott (1970) argued that judicial policy was driven by a shift in public and

business sentiment: While “[t]he operator of the late nineteenth century was

normally very independent and suspicious of his competitors” (p. 323),

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business and government leaders had concluded by the early 1920s that the

“vigorous insistence on maintaining competition would deny business the

necessary knowledge to establish stability in an increasingly complex econ-

omy” (pp. 337–338).

These briefs indicate that successful industrial development is not purely

based on competition. Neoclassical economists’ ideals of competition are

based on a stylized reading of the British and American economic history

(Dobbin, 1999). The reality is that during earlier eras, cartels were widely

organized and perceived as legitimate (Dobbin & Dowd, 1997; Hartz, 1948;

Kolko, 1965). To account for the discrepancies between economic theory and

economic reality, Andrew Shonfield (1965) suggested “Classical economics,

which was largely a British invention, converted the British experience—or

rather what the British hoped would eventually emerge from the trend which

they had detected in their own story—into something very like the Platonic

idea of capitalism” (p. 71).

Analyses of contemporary markets also indicate that uninhibited competi-

tion is not a natural state. MacKenzie, Muniesa and Siu (2007) take up the

idea of performativity in economics, which suggests that economics (like

other sciences) may not just describe but also create what it studies. As Michel

Callon (1998) puts it: “economics… performs, shapes and formats the econ-

omy, rather than observing how it functions” (p. 2). A paradigmatic example

of how performativity may create competition is presented by Garcia-Parpet

(2007), who examines the introduction of a computerized market for table

strawberries in France and shows that the market was shaped by an influential

advisor to reflect the economic ideal of a perfectly competitive market. In

other words, the market was an artifact of the theory of economics, not a

reflection of how markets “naturally” work. In an experimental setting, Frank,

Gilovich and Regan (1993) found that students trained in economics are less

likely to cooperate in prisoner’s dilemma games than are others. Similarly,

Shapira and Madsen (1974) show that children educated according to a

utopian socialist philosophy were more likely to cooperate in games than chil-

dren raised in a modern capitalist education system. In the field of manage-

ment, Ferraro, Pfeffer and Sutton (2005) suggest that the assumptions of

economics become taken for granted and normatively valued through instru-

ments such as business education and media reports, independent of their

empirical validity.

None of this is meant to support a conclusion that cooperation between

resource-sharers is preferable to competition. Rather, we suggest that the

reverse conclusion, which is currently more prevalent, is unjustified. Even a

brief reflection on economic history highlights the possibility that commen-

salistic relations between potential competitors are not a recipe for disaster.

Analysis of contemporary economic behavior supports the idea that actors

and markets may exhibit more competition than they would in the absence of

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influential theories that trumpet the value of competition. Without certain

theories, cooperation between competitors might be more common.

What Tips the Balance Between Cooperation and Competition?

Although it has gone under-exploited, the fact that competition and coopera-

tion derive from the same relationships to resources has not been unrecog-

nized in the literature. Indeed, there have been some impassioned

announcements of the significance for research and practice of unpacking the

simultaneous pressures on competition and cooperation (Astley & Fombrun,

1983; Pennings, 1981). The efforts so far to explain when competitors will

cooperate have so far been mostly structural. For example, the strategic group

theorists perceive organizational performance as a function of two sources—

the structure of an industry and the position of an organization within the

industry (McGahan & Porter, 1997). The structure of the industry (e.g.,

strength of the market, barriers to entry, favorable regulation) affects all

members of the industry, and so represents an opportunity for them to coop-

erate. Position within the industry is the source of advantage of individual

organizations, and is therefore what they compete over. Following this

structural framework, Barnett (2006) proposes that when organizations

perceive

industry structure to be a more important input to their success, they

are more likely to cooperate with competitors. We agree with this, with the

emphasis we have added on the word

perceive

. But the small literature has

mostly emphasized structure rather than the perception of structure. Extant

accounts of competitor cooperation highlight the relative overlap of their

resources and the interdependence between overlapping and non-overlapping

activities (Katz, 1986; Khanna, Gulati, & Nohria, 1998), whether they have

financial stakes in each other (Baum & Ingram, 1998; Darr et al., 1995), and

the number and size of competitors (French, 1986; Jacquemin, 1987).

Three reasons cause us to emphasize perception over structure as determi-

native. First, strategic decision makers are cognitively constrained, which

means that their identification of competitors depends on mental models of

competition that imperfectly reflect the underlying industry structure (Porac

& Thomas, 1990). When managers identify similar others as competitors

(Baum & Lant, 2003; Porac, Thomas, Wilson, Paton, & Kanfer, 1995), they

are systematically biased in a number of important ways. Their cognitive

models identify a smaller set of others as competitors than would an objective

analysis of niche overlap (Porac & Thomas, 1990). Further, they are likely to

underestimate inter-population competition, and overestimate the impor-

tance of geographic co-location as a determinant of competition (Baum &

Lant, 2003; Porac & Thomas, 1990). If managers can’t reliably translate

industry structure into understandings of competition, then industry struc-

ture must be an unreliable predictor of how they chose to behave towards

their competitors.

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Second and related, there are a number of empirical accounts that show

variance in competitors’ willingness to cooperate

within

a given industrial

structure. Tjosvold (1997) examines the cooperative orientation of Vancouver

dentists—a set of business people who operate within the same industry.

Among these structural equivalent professionals, there was substantial varia-

tion in whether they were oriented towards cooperation or competition with

other dentists. Some dentists had shared purpose, sympathy for, and saw

interdependence with other dentists, and some did not. Those that did

engaged other dentists more openly and were more successful in solving busi-

ness problems through cooperation. Furthermore, in cases we will document

later, the emergence of cooperation is not always coincident with a change in

industry structure. There is no grand test that allows us to say whether more

variance in cooperation between competitors is explained by within- as

opposed to between-industry factors, but our read of the evidence indicates

that the former is more important and is certainly more important than has

been recognized by the structural emphasis of the literature to date.

Third, even when the structure of an industry creates an interest in coop-

eration between competitors, there remains a collective action problem which

is not easily solved by structural factors (King, Lenox, & Barnett, 2002).

Investments to create a favorable industry structure are a classic example of a

free-rider problem, because all members of the industry will benefit regardless

of their contributions. Often, structural conditions for resolving free-rider

problems don’t exist (Olson, 1965), and in these cases, an interest in coopera-

tion would be insufficient to create cooperation among competitors. The

empirical literature on collective action relies heavily on “extra-rational”

incentives to cooperate, exactly the factors that we consider below.

If industry structure does not explain whether competitors will cooperate,

what does? Deutsch (1973) argues that cooperation is more likely when actors

perceive their goals as related. The trick, simply, is recognizing a shared inter-

est. Niche overlap alone is insufficient to generate the perception of shared

interest—indeed, the literature on competitive categorization shows that

business people over-estimate the conflict of interest with the others that most

obviously overlap with their niches (Baum & Lant, 2003). What is necessary is

some other interest in common besides an interest in the same resources. This

“something else in common” could be summarized under the label “shared

identity”. We see two main mechanisms that encourage competitors to recog-

nize shared identity: shared affective relationships and salient out-group

comparisons.

Shared Affective Relationships

Positive affect towards a competitor provides an interest in the other’s

outcomes that can seed a cooperative orientation even in face of zero-sum

resource concerns. In the language of collective action, affect may provide

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291

rival incentives, a social reward to cooperators that may tip the balance

between the resources available from cooperating or competing. In identity

terms, the affective relationship may shift actors’ categorization of each other

from “competitors” to “friends” or “kin”. As Montgomery (1998) shows in a

prisoners’ dilemma experiment, a simple change of the role of a player from

business person to friend can induce cooperation. The influence of affect in

the context of competitor friendships was described by Ingram and Roberts

(2000) as inducing hotel managers to sometimes forego a competitive oppor-

tunity to help a friend. This was not pure altruism as it was coupled with an

expectation that the friend would reciprocate the favor. Consistent with this,

Furseth (2006) found that friendships were common among competing

managers in Norwegian clothing retail stores, and that these friendships

reduced price competition substantially.

Kinship may be an even stronger source of sympathy and empathy among

competitors. Family relations between competitors were the foundation of

long-standing commensalistic systems in British banking and industry (Lisle-

Williams, 1984; Ingram & Lifschitz, 2006). The intergenerational spans of

those arrangements facilitate an orientation towards long-run interests, one of

the distinct advantages of kinship over other affective relationships. When

competitors are oriented to the long run, opportunities for cooperation are

more attractive (Axelrod, 1984).

We admit that some social relations can be endogenous results of structural

relations. For example, in the study of Sydney hotels, Ingram and Roberts

(2000) found that if a manager of a focal hotel identifies a target hotel as direct

competitor, she is more likely to report friendship with managers of the target

hotel. In his book,

Marriage Alliance in Late Medieval Florence,

Molho (1994)

shows that marriage is channeled by social stratification: the ruling class

married almost exclusively from within their own city and social level and thus

created a tight weave of interconnections. But competitors are not always

friends or relatives; the affective network is not identical to the structure of

niche overlap. The point we highlight here is that the different degrees of shared

affective relations tip the balance between competition and cooperation.

Another intriguing source of affect, broadly defined, between competitors

is suggested by Podolny and Scott-Morton (1999) who add social identity to

an economic cartel model. They show that new entrants with high social status

were less likely to be preyed on by British shipping cartels. They conclude that

the high status entrants were viewed as more trustworthy by incumbents in

the industry, and seen as more likely to uphold the “moral community” of the

cartel. A moral community is a concept introduced by Granovetter (1995) as

important to cartel stability. According to Granovetter, moral communities

imply trust, normative capacity and a willingness to forego opportunism. Just

as kinship and friendship, prominence or membership in an elite social group

can be the basis of a moral community.

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Podolny and Scott-Morton (1999) also found that social status is more

important in cartel incumbents’ evaluation of the likelihood to cooperate of

young firms than older firms. They interpret the finding from the information

asymmetry perspective: older firms already have a long-enough history to

demonstrate their cooperative inclination and thus status is relatively minor in

reducing the uncertainty associated with older firms. Opportunism associated

with information asymmetry is one of the biggest threats toward interorgani-

zational cooperation. Friendship, kinship, and social status help to mitigate

this problem by transferring tacit, nuanced, and trust-worthy information and

helping organizations to better evaluate cooperators’ attributes and motiva-

tion. Social bonds also reduce opportunism because they generate loyalty,

trust, and commitment, which are key components of successful cooperation

(Pesamaa & Hair, 2007).

Salient Outgroup

Sherif, Harvey, White, Hood, and Sherif’s (1961) Robber’s Cave experiment

begins with two separate groups of boys at camp. Initially, the groups are

unaware of each other. The boys in the groups act as boys at camp do—they

have friends and enemies within their group, they think highly of some of

their group mates and are unimpressed with others. In the second part of the

experiment the groups are introduced to each other as rivals. The introduc-

tion of the rival groups shifts relations within the original groups, such that

ingroup solidarity and cooperation increase. This experiment lays the founda-

tion for a large literature that links the ingroup–outgroup effect to identity

and cooperation. Subsequent experiments show that even small distinctions

between groups strengthen identity within the groups: common features of

the focal group may become more salient with the introduction of “others”

with whom to draw contrasts (Brewer & Kramer, 1986; Hogg & Terry, 2000;

Tajfel & Turner, 1985) and contributions to collective action of the ingroup

increase (Bornstein, Erev, & Rosen, 1990; Erev, Bornstein, & Galili, 1993).

The ingroup–outgroup effect is a likely mechanism to promote exclusion

commensalism. As the bottom panel in Figure 6.2 shows, that form of coop-

eration presents a natural candidate to serve as the outgroup. Ingram and

McEvily (2007) illustrate just this process in an analysis of cooperation

among food cooperatives (coops). Coops’ identity and their recognition of

their shared interests were triggered by the entrance to their niche of a new

competitor, the natural foods chain Whole Foods. Whole Foods targeted

some of the same customers as the coops, but it was obviously distinct from

them, particularly as it was a for-profit corporation rather than a coop. Such

stark distinctions of organizational form or ideology are likely bases to divide

competitors into ingroups and outgroups because they allow the engineers of

cooperation to make resonant claims that “

are alike but

they

are different

from us”.

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For the food coops, their cooperation took the form of Cooperative

Grocers Associations, which were voluntary groups that aimed to improve the

coops’ collective position by joint purchasing to reap economies of scale, as

well as joint learning via the sharing of data and advice. Demonstrating the

galvanizing effect of Whole Foods, individual coops were more likely to join

Cooperative Grocers Associations if they recognized that corporate Goliath as

their primary competitor.

This result is also useful to illustrate our claim that commensalism hinges

ultimately on identity processes and not the structure of industries. It is true

that the entrance of Whole Foods represented a structural change for the

coops, and created an incentive to engage in exclusion commensalism by

offering a new competitor that could be excluded. But even though Whole

Foods is the giant of natural foods retailing, it does not dominate the niche,

and for the average coop the niche overlap provided by other corporate

competitors was greater than that of Whole Foods. Yet, Ingram and McEvily

(2007) found that niche overlap from corporate competitors (measured with

or without Whole Foods) did not predict coop commensalism. It was not the

structural conditions that formed the motivation for coops to band together,

but the salience of a single organization that reminded them of what they have

in common.

Weber (1978, p. 342) observes that industries may divide into ingroups and

outgroups based on almost any characteristic of the competitors, but some

distinctions are more resonant than others. As the economy is again on a

trend of globalization, with markets and exchange more likely to be across

national boundaries, firms are more likely to encounter competitors from

other nations. Although scholars are still debating whether globalization is a

homogenizing force and creates world-wide convergence (Guillen, 2001),

their debate is anchored on the common ground that nationality has become

more salient when the scope of competition goes beyond national boundary.

Researchers find that the characteristics of nationality are particularly

resonant for dividing competitors (Zaheer, 1995). Cross-border comparisons

may facilitate competitor cohesion within countries, resulting in competition

between national groups and cooperation within those groups.

The stimulus of global competition for competitor cooperation can also be

seen clearly in American anti-trust policy. US anti-trust law does not apply to

any activities of US companies that effect only foreign markets: “Nothing

contained in the Sherman Act [15 USC. 1 et seq.] shall be construed as declar-

ing to be illegal an association entered into for the sole purpose of engaging in

export trade and actually engaged solely in such export trade, or an agree-

ment made or act done in the course of export trade by such association” (15

USC. CHAPTER 2 Subchapter II § 62). The National Cooperative Research

Act of 1984, the legislation that enabled the formation of research consortia,

was stimulated by concerns over foreign competition. The statement of

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implementation of the Act from the US Department of Justice observes that

“[c]ooperative research and development efforts may… enable American

business and industry to keep pace with foreign competitors…” (Barnett,

Mischke, & Ocasio, 2000, p. 351). Informal collusive arrangements also reflect

an own-nation preference, as evidenced by Podolny and Scott-Morton’s

(1999) finding that British shipping cartels were less aggressive towards

market entrants from Britain.

The case of hoteliers at Niagara Falls illustrates how national identity can

be the basis of exclusion commensalism. Ingram and Inman (1996) describe

the structure of resource relations: there were two populations of hotels divided

by the Niagara River, one in Canada, the other in the USA. Consistent with

hotel industries elsewhere, the evidence here was that the a key determinant of

competitive intensity was geographic proximity—a Canadian hotel competed

more intensely with another Canadian hotel next door than it did with a US

hotel across the river. Nevertheless, cooperation between competitors was

within the national communities. This cooperation involved a number of

informal (and sometimes shady) projects, such as when US hoteliers paid cab

drivers to kidnap tourists from the Canadian side of the River and drop them

on the American side. The model that both populations seemed to work under

was that the first goal was to get tourists on

their

side of the border, at which

point they would compete with their countrymen to win the business. National

identity, evoked by institutional entrepreneurs and enforced by artful cross

border comparisons, was very important in producing the perception of shared

interest amongst the hoteliers within each hotel population.

Institutional Change

So far we have explained the structural preconditions for cooperation between

competitors, why such cooperation has been slighted as illegitimate, and the

perception and identity process that distinguish competitors from coopera-

tors. In this section we relate these arguments to a very compelling and

current topic in management, that of institutional change. In doing so, we aim

to show some of the likely opportunities for scholars to apply the ideas we

have presented as they seek to explain important phenomena.

The most pressing challenge for all forms of institutional arguments that

are prominent throughout the social sciences is to explain the origin and

change of institutions, and management scholars have a significant role to

play in this effort because organizations are important for institutional

change. Institutional change presents an obvious opportunity for growth

commensalism. All competitors for a given resource are affected by the soci-

etal rules that govern its production, distribution and consumption. Thus, the

possibility of favorable institutional change is a textbook example of Barnett’s

(2006) argument that opportunities to improve industry structure are oppor-

tunities for cooperation between competitors. It is also, however, a textbook

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example of our critique of the industry structure explanation for competitor

cooperation as being insufficient resolution of the free-rider problem. Because

institutions affect all members of an industry or other category of competitors,

it is hard to exclude any member from the benefits of institutional change.

This non-excludability undermines contributions as each competitor may

free-ride on the institution-change efforts of others.

The significance of this problem has led scholars of institutional change to

draw on social movement research for explanations as to when individuals and

organizations will mobilize despite opportunities to free-ride (Rao, Morill, &

Zald, 2000). Repeatedly, these efforts have highlighted determinants of social

identity as underlying cooperation to change institutions. A fundamental inhi-

bition to institutional change is that institutions themselves are constitutive of

the identities of actors and associated with incentives for compliance, making

them self-reinforcing and durable. This suggests that competitors may not be

alert to the opportunity to change the institutions that constrain them because

they take those institutions for granted. New entrants to an industry or

resource space are outside of this reified system, and often trigger efforts at

institutional change (Davis, Diekmann, & Tinsley, 1994; Ingram, 1998; Rao,

Monin, & Durand, 2003).

The social movement literature emphasizes the significance of affective ties

as a source of rival incentive to promote cooperation (Dani & McAdam,

2003). Ingram and Rao (2004) show this effect in organizational efforts to

change institutions in a study of the battle between independent and chain

stores over the regulatory environment of retailing. They show that indepen-

dents were more influential over tax laws when they were more homogenous

and therefore more cohesive. Note that similarity between small businesses,

according to most economic and sociological theories, would be the basis of

intense competition due to niche overlap—in the case of independent retailers

fighting chains, similarity was instead the basis of cohesion and successful

collective action.

The social movement literature also highlights the role of institutional

entrepreneurs in promoting mobilization (Rao, 2007). Often, these entrepre-

neurs apply rhetoric to convince competitors that they have common inter-

ests, or that their interests diverge from some outside group (Benford & Snow,

2000). In other words, they manipulate identities, and bring into being the

conditions that lead to cooperation among competitors. These entrepreneurs

illustrate our thesis that competition and cooperation may be socially

constructed. Studies of social movement identity management have focused

on efforts to forge allegiances between competing organizations by presenting

their identities as compatible (Clemens, 1993; Ingram & Rao, 2004). However,

institutional entrepreneurs may also facilitate the ingroup–outgroup effect

when they strengthen identities by emphasizing differences between their

organization and outsiders or rivals, a technique that Gamson (1992) labels

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“adversarial framing”. For example, Barnett and Woywode (2004) document

adversarial framing in the political cartoons of Viennese newspapers in the

interwar years.

Conclusion

Competition is an important mechanism that governs the development of our

society. Not only does competition stimulate self-improvement, but also the

very same ground that brings up competition also nurtures cooperation,

which may not necessarily jeopardize social efficiency. Understanding the co-

existence of competition and cooperation is crucial to a better understanding

of a variety of empirical phenomenon, ranging from technology innovation to

institutional change. Deflating the taboo against the cooperation between

competitors also contributes to the policy makers’ decision when designing

policies that aim at developing a more viable business community.

For studies about competition, we suggest that cooperation is an often

neglected aspect of relationships between competitors. Competition and

cooperation are like the two pans on a balance scale. Structural architecture is

indeterminate as to whether the scale will tip to the competition side or to the

cooperation side. What matters is actually the weight that organizational

executives put on each pan, which is a mixture of their personal judgment,

perception, and identity. Additionally, when social institutions like anti-trust

laws and theories of competition put a thumb on one side or the other, they

too may tip the balance.

These ideas have three important implications for scholars. First, scholars

should be clear that the structural relationship of niche overlap has indetermi-

nate implications. This point is consistent with economic sociologists’ critique

of the hard structuralism in which the architecture of network positions alone

does not provide sufficient account of social outcomes because diverse, even

divergent, interpretation can flow across the very same structure (Krippner,

2001; Krippner & Alvarez, 2007). But many managerial theorists still assume

that niche overlap produces only competition. Even those that have

approached competition from the perspective of perception and cognition

share the same tendency to downplay the cooperative implications of struc-

tural similarity (e.g., Porac et al., 1995). In this paper we have shown that

niche overlap begets both competition and cooperation. Researchers need to

look beyond the resource structure to social structure to know whether to

expect competition or cooperation.

Second, researchers should be cautious of the performativity of successful

theories. For example, in their study of the development of financial econom-

ics, MacKenzie and Millo (2003) show that, when first introduced in 1973, the

Black–Scholes–Merton option-pricing model achieved only a modest match

with empirical data. But as more and more people applied the model into their

option-pricing calculation, the markets gradually altered and converged

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toward the model’s assumptions. When the model was retested in the middle

of 1980s, it had achieved an excellent fit. Thus, taking a longitudinal look to

trace the theory–reality discrepancy over time helps researchers to realize the

self-fulfilling circle of theories. In this paper, we employ the same method and

show that the illegitimacy of the cooperation between competitors is a fairly

recent social construction.

Third, and finally, researchers should use multiple methods to conduct

richer and more localized analysis of inter-organizational relationships. Most

of the research supporting the view that niche overlap creates competition has

been conducted with archival methods. It is not surprising that archival

approaches identify the relevance of the structure of resource dependence

because that is typically the only dimension of inter-organizational relations

that they can identify. Studies that compliment data on niche overlap between

organizations with information on how the organizations see and think about

each other often reach different conclusions. Most often, the data that expose

the influences that may turn potential competitors into cooperators have

come from surveys and interviews of managers, and from historical analyses

of the rhetorical arguments that institutional entrepreneurs have used to

convince organizations that they have shared interests, and to mobilize them

to act on those interests.

Acknowledgements

We thank Michael Barnett, Joel Baum, Art Brief, Ray Horton, Huggy Rao and

Jim Walsh for helpful comments and advice.

Endnote

1. There is some controversy over the theory of density dependence as a whole but

it is mostly associated with the argument as to how legitimacy varies with density.

The competition component of the theory is seen as well supported.

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