Facoltà di Economia
Università degli Studi di Parma
Cooperation and Competition
Among Firms
Ch. 3
Provisional Version (1)
2013-14
1 1
Factors (strategies) facilitating
cooperation between individuals
and firms
2

Factors and mechanisms of type:
endogenous
exogenous
3
Endogenous Strategies
The initial structure of payoffs is unaffected.
The likelihood of cooperation depends on variables
that:
• qualify subjectively the participants;
• define the attributes of the group;
• reflect the characteristics or the content of collective
action.
4
Exogenous Strategies
Preferences and characteristics of the participants are
taken as given.




The likelihood of cooperation depends on:
changes in the structure of payoffs;
sanctions mechanisms and incentives entered;
involvement of agents outside the group
differentiation of agents in decision-making roles
5
Endogenous Strategies
6
The shadow of the future


One-shot Prisoner’s dilemma
Iterated prisoner’s dilemma (IPD)
7
Prisoner’s dilemma
C
D
C
1, 1
-1, 2
D
2, -1
0,0
8
Prisoner’s dilemma
Dana
D
C
C
1, 1
-1, 2
D
2, -1
0,0
Andrea
9
Prisoner’s dilemma
Dana
D
C
C
1, 1
-1, 2
D
2, -1
0,0
Andrea
D,D=0
C,C=1
10
Prisoner’s dilemma
Dana
D
C
C
1, 1
-1, 2
D
2, -1
0,0
Andrea
D,D=0+0
C,C=1+1
11
Prisoner’s dilemma
Dana
D
C
C
1, 1
-1, 2
D
2, -1
0,0
Andrea
D,D=0+0+0+0
C,C=1+1+1+1
12
Prisoner’s dilemma
Dana
D
C
C
1, 1
-1, 2
D
2, -1
0,0
Andrea
D,D=0+0+0+0+0
C,C=1+1+1+1+1
13
Prisoner’s dilemma
Dana
D
C
C
1, 1
-1, 2
D
2, -1
0,0
Andrea
D,D=0+0+0+0+0+0
C,C=1+1+1+1+1+1
14
Prisoner’s dilemma
Dana
D
C
C
1, 1
-1, 2
D
2, -1
0,0
Andrea
D,D=0+0+0+0+0+0+0….
C,C=1+1+1+1+1+1+1….
15
The shadow of the future

One-shot Prisoner’s dilemma
Iterated prisoner’s dilemma (IPD)

Indefinite Iteration:

The value of cooperation at a given stage in an IPD clearly
depends on the odds of meeting one's opponent in later
rounds.

As p (likelihood to meet one’s opponent in the following
rounds) approaches 0, the IPD becomes a one-shot PD, and
the value of defection increases.

As p approaches 1 the IPD becomes an infinite IPD, and the
value of defection decreases

16
1.1
Self-enforcing agreements


Incomplete exchange scheme involving two or more
imperfectly informed agents.
The parties endorse mutual commitments to the
continuation of the exchange even if they do not adopt
legally binding contracts.
The advantage of exchange is evaluated with regard to
the difference between the accumulated payoffs of joint
cooperation and the payoffs of defection.
(example: Buyer-supplier relationships)
19






Self-enforcing agreements can not be applied to
transactions involving relationships that develop in a
short term horizon.
But they are an appropriate solution when the time
horizon of the report is expected long-term
(indefinite iterated game).
The sanction linked to failure to cooperate is not
imposed by a third party but consists of the loss of
profits of the entire exchange relationship.
Sd=Defection payoff
Ss=Cooperation payoff
P=Accumulated payoff
20
Even if T>R

T   Rs
1 s
 1
P   Rs  T  R 
1 s
21
Self-enforcing Agreements and
Interfirm Cooperation




infinite time horizon of the exchange*
existence of a minimum length of the exchange
certainty of punishment
reciprocity of the benefits of ongoing exchange
(*) “Chain store paradox" (Selten,1978)
22
1.2
Strategies of reciprocity
23
In the iterated prisoner's dilemma players
constantly face the trade-off between
maintaining the credibility of the threat (to
punish anytime) and sustaining the costs of
retaliation

Which strategies will maximize the aggregate
benefit from cooperation?
24
Tit for Tat
(Axelrod/Rapoport 1984)


Tournament
(14+62 entries)
Unconditional defection (ALL D), Tester , etc.
Tit for Tat is a strategy based on reciprocity.
Strategy:
1) in the first game the agent who selected Tit for Tat
chooses to cooperate
2) in subsequent rounds he mimics the other player's
choice: he responds to cooperation with cooperation
and defection with defection.
25
Bible


Judges: verse 15:11, (Samson and Philistines)
“As they did unto me, so have I done unto
them”.
Tit for tat

https://www.youtube.com/watch?v=QYg8khfc9Fs
Main features of Tit for Tat
Tit for Tat is a strategy that is:




nice (it is never the first to defect)
retaliatory (to avoid the risk of exploitation)
forward-looking (not cutting off the
interaction)
forgiving (it is willing to cooperate even with
those who have defected against it )
28

Repeated prisoner’s dilemma Simulator

http://www.gametheory.net/Mike/applets/PDilemma/

http://ccl.northwestern.edu/netlogo/models/PDN-PersonIterated

(Tit for Tat+Defectors)
1.3
“Benefit of the doubt”
30
“Benefit of the doubt”

In Tit for Tat each actor is able to monitor the
action of the partner (perfect information)

Frequently, in the real world, players are not able to
assess accurately whether the choice of the other
party stems from an intentional decision or it is the
result of chance, force majeure or variables beyond
the control of the partner.

Bendor, Kramer and Stuot (1991) abandon the
assumption that the players have perfect knowledge
of the choices made by the counterparts and
introduce “noisy settings”
31
Implications



Highly reactive strategies tend to provide very
low cooperative outcomes;
Tit for Tat in an uncertain environment is
dominated by other strategies;
(Asymmetry of the effects of the error term)
32
Strategies of ‘generosity’




In uncertain environments, the dominant strategies are
characterized by "generosity" (see NICE).
NICE, for istance, does not reciprocate with mutual
defection, but continues to cooperate by allowing the
recovery of cooperative counterpart.
Only below a defined level of ex ante cooperation, NICE
begin to progressively reduce their cooperative attitude.
In uncertain contexts ‘benefit of doubt’ in the long run
generates more favorable results than immediate reactivity
33

% C.C
100
90
n. rounds

% C.C
100
5
5
90
n. rounds

% C.C
100
5
5
5
90
n. rounds

% C.C
100
5
5
5
90
n. rounds

% C.C
100
5
5
5
90
n. rounds

% C.C
100
5
5
5
90
n. rounds

% C.C
100
5
5
5
90
n. rounds
Mathew 5:38-44

38 "Here's another old saying that deserves a second look:
'Eye for eye, tooth for tooth.' 39 Is that going to get us
anywhere? Here's what I propose: 'Don't hit back at all.' If
someone strikes you, stand there and take it. 40 If someone
drags you into court and sues for the shirt off your back,
giftwrap your best coat and make a present of it. 41 And if
someone takes unfair advantage of you, use the occasion to
practice the servant life. 42 No more tit-for-tat stuff. Live
generously. 43 "You're familiar with the old written law,
'Love your friend,' and its unwritten companion, 'Hate
your enemy.' 44 I'm challenging that. I'm telling you to
love your enemies.
Limits


Exploitation risks
Incomplete Cooperation
42
2
Heterogeneity
43
2
Heterogeneity



Relevant dimensions:
Differences in resource endowment;
Heterogeneity in preferences
44
Heterogeneity



Heterogeneity promotes collective action
(Olson);
Heterogeneity inhibits collective action
(Ostrom);
The concept of critical mass (Maxwell)
45
Heterogeneity
Olson
Cooper
Heterog
Heterogeneity
Olson
Cooper
Ostrom
Heterog
Heterogeneity
Cooper
Maxwell
Heterog
Heterogeneity
Olson
Cooper
Maxwell
Ostrom
Heterog
Heterogeneity



Intermediate levels of heterogeneity promote
cooperation;
Very high and very low levels of heterogeneity
discourage cooperation;
Heterogeneity in endowments and homogeneity
in preferences facilitate cooperation.
50
3
Fairness
51
Ultimatum game




Division of a fixed sum of money S between a
Proposer and a Responder.
Proposer offers x.
If Responder rejects x both earn zero.
If x is accepted the Proposer earns S – x and the
Responder earns x.
52
Ultimatum game

Agent A and B cannot communicate

Agent A:
Receives € 100 and
Decides how many € to give to Agent B:
(write the ammount of € and pass the card to Agent B)
€ ... ... ... ... ..=X
Agent B
Agent B can:
a) accept and in this case Agent B receives X and Agent A receives €100-X
b) refuse and in this case both get € = 0
Accepts
□
Refuses
□
53
Predictions with rational and
self-regarding players
Offer x=ε; where ε is the smallest money
unit.
 Any x>0 is accepted.

54
Experimental regularities




Most offers are between 0.3S and 0.5S.
x <0.2S is rejected half the time.
Competition among Proposers has a strong xincreasing effect.
Competition among Responders strongly
decreases x.
55
56
Interpretation



Role of fairness (and economic altruism)
Fairness as a behavioral guide
Inequality aversion
57
Dictator game

Like the ultimatum game but the Responder
cannot reject what the “Proposer” dictates (S-x,
x).
58
Predictions with rational and
self-regarding players

No sharing, i.e., x = 0
59
Experimental regularities


On average “Proposers” allocate x=0.2S.
Strong differences across experiments and
across individuals
60
61
Third party punishment game




Agent A and Agent B play a dictator game.
Player A receives an endowment of 100 tokens of
which he can transfer any amount to Player B. Player B
has no endowment and no choice to make.
Player C has an endowment of 50 tokens and observes
the transfer of Player A. After this player C can assign
punishment points to Player A.
For each punishment point assigned to Player A Player
C has costs of 1 token and Player A has costs of 3
tokens.
62
Predictions with rational and
self-regarding players

Since punishment is costly a self-interested
player C will never punish.
63
Experimental regularities


In the above experiments Players A were never
punished if they transferred 50 or more tokens
to Player B.
Roughly 60 percent of Players C punished A.
The less A transferred, the stronger was the
punishment
64
4
Trust
65
Trust (1)
Trust can be defined as :
1)Reliability/Ability/Competence
and/or
2) Fairness/Loyalty/Good Faith/Goodwill
66
Trust (2)
Trust can be defined as the expectation that
other agents will adopt cooperative behavior
even when they are not subject to control or
direct monitoring.
67
Implications

If trust is perfect, there is no room for
opportunism, and then there will be no social
dilemmas.
68
Trust as a precondition for cooperation
(General) Trust can be seen, not as a factor of
cooperation, but as a precondition allowing cooperation
projects to be identified and carried out.
It is relevant in terms of:
a) no ex-ante aversion towards cooperation
b) injection of extra economic value to cooperation as
such, with the consequence of canceling the benefits of
defection
69
Trust as an outcome of cooperation

Individual, not general, trust is the output of
positive experiences of cooperation and allows
for the extension towards further initiatives
Trust game




In a trust game an Investor receives an amount
of money S from the Experimenter, and then can send
between zero and S to the Trustee.
The Experimenter then triples the amount sent, which
we term y, so that the Trustee has 3y.
The Trustee is then free to return something (z)
between zero and 3y to the Investor.
The payoff of the Investor is S – y + z and the payoff
of the Trustee is 3y – z.
71
Predictions with rational and
self-regarding players


Trustee repays nothing: z = 0.
Investor invests nothing: y = 0.
72
Experimental regularities



On average y = 0.5S and trustees repay slightly
less than 0.5S.
Z is increasing in y.
Roughly one third of the trustees reciprocated
by sending back more than was originally sent.
73
5
Social capital
74
Social Capital


Def. 1: Social capital is the set of personal
relationships (formal or not) that an individual
has (Burt);
Def. 2: Social capital is the endowment of social
relations and rules of conduct present in a given
community (Putnam)
75
Social capital
(def.2)

Social capital is the output of experiences of
civic engagement, participation in associative
organizations (cultural, recreational, sports, etc..)
and the adherence to the norms that regulate the
community life.
76
Social capital
Def. 2
(Extended interpretation)
Social Capital facilitates collective action and cooperative
practices through:
 the strengthening of social cohesion (reduction of
conflicts, decreasing uncertainty, etc);
 the increase of information exchange;
 the strengthening of group identity.
77
Social capital
Def. 2
(Restrictive interpretation)

Social capital facilitates collective action and practical cooperative
through the following mechanism:

The networks of civic engagement provide relational goods
(contacts, information, reputation).
These assets can be preserved only if individuals maintain
positive relations inside the community they belong to.
The fear that in the case of defection the sanction could be
ostracism (exclusion from the system of internal relationships),
reduces the individual and collective incentives towards
opportunism and facilitates cooperation


78
Social capital
and institutional action

Hp. 1 Capital (Civicness) → Selection of the political
representation → Control of the work of public
administrators → Institutional efficiency → Increased
endowment of public goods → Social and economic
growth → Extension of the social capital
79
Social capital and institutional action

Hp. 2 Proactive Institutions → Institutional
activism → Increase the endowment of public
goods; → Economic and social growth →
Growth of civicness → Increase in Social
Capital → Selection of the political
representation → Control of the work of public
administrators
80
Social capital and institutional action
Implications:



Circularity of processes;
Role of history (Hp 1: Social capital is inherited
from the past);
Institutional action (the formation of social
capital is affected by institutional initiative)
81
6
Group Identity
82
Individual and group identity
Identity - self-image - can be seen as a
component of individual utility and is an
explanation for agents’ behaviour in an
economic context
(Akerlof and Kranton 2000).
83
Individual and group identity



Individual identity develops in social contexts;
Group identity reinforces the sense of self and every
action that approximates the individual to the ideal
characteristics of the group increases its personnel
utility;
These actions can be highly costly and may
apparently conflict with individual rationality.
84
List of rites of passage (partial)







NA (native Indians), SA, Africa: women at menses secluded and taught by elder the art of
womanhood. Boys undergo trials to affirm their passage. (first hunt, wilderness alone, warfare
(Borneo Tribes). Candomble initiate in Brazil (see below). Dangers in this passage can provide
great growth potential
Lesse tribe, Zaire: girls reach menarche, secluded with other girls.
The Zulus of South Africa, and the Cuna of S. America: girls are secluded during the onset of
puberty (safe place).
The Ndembu of Zambia: girls secluded 3 months: communicate with outside only with melodic
messages played on a harp-like instrument.
In Kampuchea : seclusion several years. In all cases, women emerge as women and potential
brides.
Turkey: sunnet = circumcision (7-8) so boy remembers when he became a "man". Paraded on
donkey before sunnet, white robe with red ribbon. After, boys take off red ribbon and sit in a
lavishly decorated bed to receive gifts and compliments for bravery.
Clitoridectomy (female circumcision): Egypt (even mummies) and other Muslim countries. In
Egypt, 75% of the females are circumcised. 1) end the girl's phase of androgyny, 2) curb woman's
sexual desires as adult (reduces infidelity). If woman is not circumcised, considered unfit for
marriage. Not mandated by Islam, but by culture.
Implications
The higher the group identification, the greater
the propensity of individual agents to
underestimate or to accept the risk of defection
of some members and develop an optimistic
forecast on the overall conduct of the group.
86
7
Reputation
87
Reputation
Reputation can be defined as an individual sunk
investment made to signal the personal ability
to fulfill the assigned tasks and the level and
quality of his/her own commitment.
88
Reputation and cooperation
Reputation can be identified as a barrier against
defection: actors with good reputations tend
not to choose defection for fear of cancelling
the value of their investment in reputation.
89
Written Exam

Three questions (an hour and a half)

General topics/Slides/Classroom presentation

Threshold effect
Argumentative approach

Written Exam








Impact of a sanctioning mechanism on the interaction
between economic agents
Typologies of social dilemmas: social traps and public
goods
Technological externalities and cooperation between
firms
Group size and cooperation between agents
Ultimatum game: what it is and what it tells us
Self-enforcing agreements: main features
Heterogeneity and collective action
The tragedy of commons and the implications for the
cooperation between agents
Exogenous
variables and mechanisms
92
Exogenous Strategies
Preferences and characteristics of the participants are
taken as given.




The likelihood of cooperation depends on:
changes in the structure of payoffs;
sanctions mechanisms and incentives entered;
involvement of agents outside the group
differentiation of agents in decision-making roles
93
2.1
Sanctioning systems
94
Introduction: public goods game





Each Firm (player) receives from the Experimenter n
tokens at each round.
There are 4 firms and 20 rounds of the game.
Firms can invest in a common research project (s) or
retain the sum of money (1-s).
The Experimenter doubles the value of the total
investment and divides by 4.
Each Firm maximizes the individual cumulative
income.
Changes in the payoff structure


Changes in the structure of the dilemma can alter the
incentives of individuals and make the adoption of
cooperative behavior more likely.
Free riding may be reduced or canceled if punished
through certain sanctions and ex ante known by agents.
96
Impact of sanctioning



Fehr and Gächter (2000) introduced a punishment opportunity
into the public goods game.
In their game there are two stages. Stage one is a public goods
game. In stage two, after every player in the group has been
informed about the contributions of each group member, each
player can assign up to ten punishment points to each of the
other players.
The assignment of one punishment point reduces the first-stage
income of the punished subject by ten per cent and also reduces
the income of the punisher.
97
Impact of sanctioning
Predictions with rational and self-regarding players



Since punishment is costly for the punisher, the selfinterest hypothesis predicts zero punishment.
Since rational players will anticipate this, the selfinterest hypothesis predicts no difference in the
contribution behavior between the standard public
goods game and the game with a punishment
opportunity.
In both conditions zero contributions are predicted.
98
Impact of sanctioning
Experimental regularities




The experimental evidence completely rejects this prediction.
In contrast to the standard public goods game, where
cooperation declines over time and is close to zero in the final
period, the punishment opportunity causes a sharp jump in
cooperation and a steady increase until almost all subjects
contribute their whole endowment.
The sharp increase occurs because free-riders often get punished,
and the less they give, the more likely punishment is.
Cooperators feel that free-riders take unfair advantage and are
thus willing to punish them.
99
Impact of sanctioning
100
Impact of sanctioning
Mascalet et al. 2003
101
102
Impact of sanctioning

“The actual rate of punishment is very low in
the last few periods: the mere threat of
punishment, and the memory of its sting from
past punishments, is enough to induce potential
free-riders to cooperate” (Camerer and Fehr).
103
Monetary and nonmonetary sanctions
Mascalet et al. 2003


Monetary sanctions = opportunity of decreasing
monetary payoff of other’s player
Nonmonetary sanctions (opportunity to communicate a
level of disapproval of each other player's contribution)
104
Monetary and nonmonetary sanctions
Mascalet et al. 2003



“Monetary and nonmonetary sanctions (opportunity to
communicate a level of disapproval of each other
player's contribution) initially increase contributions by
a similar amount.
Over time, however, monetary sanctions lead to higher
contributions than nonmonetary sanctions.
After the opportunity to impose sanctions is lifted,
contributions fall to similar levels…”
Trust and sanctioning mechanism



Mulder,Van Dijk, De Cremer, Wilke (2006)
“Sanctioning systems in social dilemmas are often meant to
increase trust in others and to increase cooperation. Sanctioning
systems may also give people the idea that others act in their own
self-interest and undermine the belief that others are internally
motivated to cooperate.
When there is a sanction on defection, trust in others being
internally motivated to cooperate is undermined: participants,
who had experienced the presence of a sanctioning system,
trusted fellow group members less than participants who had
not. In a similar vein, the sanction undermined cooperation
when trust was intitially high.”
Trust and sanctioning mechanism:
monitoring systems



Coletti et al. 2004:
For improving cooperation firms can enhance the control
systems used to govern collaborative agreements. Through
increased monitoring, sanctioning, and rewarding, firms can
reduce the incentives for opportunistic behavior.
Periodic monitoring increases the probability that opportunistic
behavior will be detected, and sanctioning (rewarding) systems
impose penalties (bonuses) on collaborators who engage in such
behavior.
107
Trust and sanctioning mechanism:
monitoring systems



Prior research suggests that control systems can have
unintended negative consequences with regard to trust
and cooperation. Specifically, a number of researchers
argue that control systems signal mistrust and therefore
reduce cooperation.
Monitoring costs may be lower than previously
believed: control systems may actually engender trust,
reinforcing the positive effects of control.
Participants cooperate more when there is a control
system in place than when there is none.
Constraints


Change of the structure of payoffs or introduction of
sanction rules require collective action.
Obstacles affecting cooperation in the original dilemma
act with the same intensity when decisions are made to
alter the structure of the game
109
Entering a sanction system


first order dilemmas (concerning the original
problem of collective action);
second-order dilemmas (regarding the
provision of mechanisms for sanctioning
opportunism; the sanction mechanism is a
public good).
110
Differences in the nature of
dilemmas


Elementary cooperation;
Instrumental cooperation
(Yamagishi 1986)
111
The role of instrumental cooperation



Second order cooperation can be seen as a costly
preplay game.
Only the contributors are allowed to join the game and
if the contributions are positive the mechanism is
provided.
The original dilemma will be solved since:
1) No-one will have incentives for defection
2) All the contributors are safe by exploitation
112
Large and small groups



In small groups, social ties, identity and other factors
may act as deterrents against opportunism and
elementary cooperation motivation may be sufficient;
In larger groups, cooperation can only emerge if agents
are motivated by factors other than those of
elementary cooperation.
Cooperation in large groups depends on the safeguards
against opportunism
113
Large and small groups



In large groups cooperation depends on the cost of
monitoring and sanctioning as well as on the expected
level of payoff;
In addition cooperation is not a function of a time
horizon in which collective action is developed;
The efficiency of investment in the sanctiong structure
tends to vary according to group size
114
2.2
The centralization
of decision-making
115
Centralization of decision-making
Centralization of decision-making = Allocation of
decision-making, sactioning, redistributive tasks to an
authority internal to the group
116
Pros




Reduction of coordination and regulation costs;
Increased fairness in the distribution of the
output
Increase of the efficiency of sanctions;
Output closer to the optimum level of
cooperation.
117
Non-hierarchical Team
Non-hierarchical Team
N(N-1)/2=15
Hierarchical Team
(N-1)=5
Pros




Reduction of coordination and regulation costs;
Increased fairness in the distribution of the
output
Increase of the efficiency of sanctions;
Output closer to the optimum level of
cooperation.
121
Cons


Reducing the volume of information exchanged
in the group;
Stratification of social roles (power
concentration).
122
Empirical evidence


The groups deviating most from the optimal use of
resources are those that are most ready to adopt
solutions to centralize decision-making processes (Rutte
and Wilke 1984)
Individuals elected for the role of leader are those most
able to complete his/her tasks, who show behavior
similar to the voters’, who have approximated optimal
use of the common resources and have prevented its
depletion.
123
Empirical evidence


Individuals chosen for the role of leader
behave very similarly to the expectations of
those who have voted them.
They improve the previous performance and
tend to limit the exploitation of individual and
collective resources and to distribute aggregate
benefits in an equitable way among group
members
124
Leadership styles
Van Vugt, Jepson,Hart, De Cremer 2004:

“Researchers have focused almost exclusively on autocratic style
(Messick & Brewer, 1983). This has led some analysts to conclude that the
only viable solution to social dilemma conflicts is the adoption of a coercive,
non-democratic regime.

Hobbes asserted that only a strong central authority or leader figure can
save society from the ruthless competition of selfish individuals.

This is echoed in the work of many contemporary writers who claim
that social dilemma stragedies can only be prevented if groups are willing to
implement dictatorial solutions (Arrow, 1951; Hardin, 1968; Messick &
Brewer, 1983)”.
Leadership styles

“After group members repeatedly failed to provide the public good through
voluntary contributions, they had an opportunity to choose a leader to
improve their group’s performance.

Among a range of leaders with different styles, an autocratic leader was
preferred the least, whereas a democratic, consultative leader was preferred
the most.”
Leadership styles

“Autocratic leadership effectively resolves social dilemmas by forcing
members to invest in their group. Although this is true in situations where
escape from a group is impossible, in many situations group members not
only have a choice between investing or not investing in a group, but also
between staying in the group or leaving, thereby affecting the group’s welfare
and stability (cf. Ziller, 1965).

Stay/exit decisions may have important consequences for a group’s
ability to provide public goods, particularly step-level goods, because they
require a minimum number of members to contribute.

Hence, effective leaders must not only be able to solve the free-rider
problem in their groups, but also to keep a sufficient number of members
committed to those groups, thereby preventing them from taking their
resources elsewhere.”
Leadership styles



Autocratic leader: effective in long run only if group members
are not allow to exit
Democratic leader: (control over decision process) effective in
step-level public good provision (the group size is crucial);
Laissez-faire leader: (leader provides only information) always
ineffective
Centralization of decision making: goals and forms
“A cluster of firms with different competencies cooperating for the
realization of a large plant may, and often do, concede to one firm the right
to determine the behaviours of the other firms within a given ‘zone of
acceptance”, to coordinate their actions, to speak on everybody’s behalf
and to exert technical leadership (Grandori and Soda 1995)
Centralization of decision making: goals and forms



(Gulati and Singh 1998)
“The command structure, authority systems, and
standard operating procedures all make it easier to
coordinate tasks between partners by clarifying
decision-making procedures and anticipating
issues before they arise.
…Hierarchical elements in alliances can effectively
address the anticipated coordination costs
resulting from interdependence for several
reasons.”
Centralization of decision making: goals and forms

Joint ventures: A separate administrativeh hierarchy of managers
oversees day-to-day functioning and addresses contingencies as they
arise. This provides an independent command structure and authority
system with clearly defined rules and responsibilities for each partner

Minority alliances: Hierarchical supervision is typically created by the
investing partner joining the board of directors of the partner that
received the investment

Contractual alliances: Few if any command structures, authority
systems, incentive systems, standard operating systems, dispute
resolution procedures, or non-market pricing systems are necessarily
part of such arrangements.
Centralization of coordination
The centralization of coordination means
entrusting a limited and specialized subset of
agents to define incentives for the
synchronisation of courses of action and
selection of the coordination equilibrium
.
132
Centralization and coordination of
cost reduction



Centralization allows exploitation of economies of
scale in gathering relevant information;
The reduced number and greater uniformity of
decision makers lowers the cost of information
transfer and reduces individual informational
symmetries.
Because they are selected on the basis of their
competences, the components of the decision board
work without requiring significant additional
knowledge investment.
133
2.3 Institutions and Goverments

Institutions=rules of games (law; judiciary
system; antitrust authority, ecc.)

Institutions= Parliaments, Governmental bodies
(Ministries; Local goverment, …); Semipublic
entities; Branch of public entities; Economic
associations, ….

Max Weber
Institutions and Goverments






Coordination of macroeconomic policies (reduction of
uncertainty; transaction costs; etc);
Industrial policies (providing a route in sectoral
change);
Increase of social capital;
Support to overcome collective market failure (R&D
interfirm projects, antitrust, …);
Support to collective initiatives ( GI in agriculture and
food industry; Unido, etc)
Garantees of independent and non opportunistic
behavior inside collective action (Consortia).






154.47-015 Kentucky Wood Products Competitiveness Corporation -Governing board.
(1) The Kentucky Wood Products Competitiveness Corporation is created and
established, as a de jure municipal corporation and political subdivision of the
Commonwealth of Kentucky which shall be a public body corporate and politic,
performing functions and purposes essential to improving and promoting the health
and general welfare of the people of the Commonwealth through promoting,
enhancing, and developing the Commonwealth's secondary wood products industries
by:
(a) Disseminating information;
(b) Providing services;
(c) Developing workforce training measures and standards to support value-added
functions with regard to design, processing and manufacture, and marketing of wood
products; and
(d) Providing financial support for the deployment of new or improved technology
and world-class manufacturing systems to businesses engaged in the production and
manufacture of value-added wood products.

(2) The corporation shall be governed by a board of thirteen
(13) members, consisting of seven (7) members representing the
private sector including four (4) representatives of Kentucky's
secondary wood products industry; one (1) member representing
the Kentucky Forest Products Council as created and established
by KRS 154.47-110; one (1) member representing the Education
and Workforce Development Cabinet; and four (4) members
representing the following universities with one (1) member each
representing the University of Kentucky, the University of
Louisville, Eastern Kentucky University, and Morehead State
University.






(3) The initial appointments to the board shall be made on or before October 1, 1994,
in the following manner:
(a) Seven (7) private sector members shall be made by the Governor from names of
persons submitted on or before August 30, 1994, in the following manner:
1. Two (2) from a list of six (6) nominees from the secondary wood products industry
submitted in writing by the Kentucky Wood Manufacturers Network;
2. Two (2) from a list of six (6) nominees from the secondary wood products industry
submitted in writing by the Kentucky Forest Industries Association;
3. One (1) from a list of three (3) nominees submitted in writing by the Mountain
Association for Community Economic Development;
4. One (1) from a list of three (3) nominees submitted in writing from grass roots
community economic development organizations that have a demonstrated interest in
the development of secondary wood products industries; and







5. One (1) from a list of three (3) nominees from private business submitted in writing by the Kentucky
Economic Development Partnership.
(b) The Kentucky Forest Products Council, the secretary of the Education and Workforce Development
Cabinet, and the presidents of the University of Kentucky, the University of Louisville, Eastern Kentucky
University, and Morehead State University shall each designate a representative of their respective organizations
to be appointed by the Governor to the board.
(c) If any organization or institution as specified in paragraph (a) of this subsection does not nominate persons
for appointment as prescribed therein, the Governor may solicit names from any other source, or he may
appoint from the list of names submitted by the remaining organizations.
(d) The initial term of office for the seven (7) private sector members shall be staggered so that four (4)
members shall serve for a term of three (3) years and three (3) members shall serve for a term of four (4) years.
Subsequent appointments shall be made in the same manner as prescribed for original appointments, and shall
be for four (4) year terms each.
(4) Except as prescribed in subsection (3)(d) of this section and for the appointee representing the Education
and Workforce Development Cabinet, all appointments shall have a term of four (4) years. The term for the
person appointed from the Education and Workforce Development Cabinet shall be the same as that of the
Governor. Any appointment made by the Governor to fill an unexpired term shall be only for the remaining
time of the vacated appointment. Nothing contained in this section shall be construed as prohibiting the
reappointment of a member of the board to succeeding terms if, the person to be reappointed has been
nominated or designated in the manner as prescribed for original appointments set forth in this section.
Effective: June 25, 2009
History: Amended 2009 Ky. Acts ch. 11, sec. 44, effective June 25, 2009. -- Amended 2006 Ky. Acts ch. 211,
sec. 77, effective July 12, 2006. -- Created 1994 Ky. Acts ch. 224, sec. 3, effective July 15, 1994
Topics not fully covered in this
course






Contractual safeguards
Differences in dyadic and multifirm alliances
Specifities of single phases of interfirm cooperation
Factors influencing the evolution of interfirm
cooperation
“Coordination devices”
Distintive characteristics of international strategic
alliance management