Dynamics of industry-wide versus firm-specific benefits when firms collaborate on building an industry infrastructure

Dynamics of industry-wide versus firm-specific benefits when firms collaborate on building an industry infrastructure

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Article ID: iaor20063469
Country: South Korea
Volume: 11
Issue: 1
Start Page Number: 25
End Page Number: 48
Publication Date: May 2005
Journal: International Journal of Management Science
Authors: ,
Keywords: Infrastructure
Abstract:

Firms often collaborate on building an infrastructure, which benefits all the firms in the industry, although in unequal magnitudes. Then a difficult and tricky issue is concerned with ‘free riding.’ Should there be only ‘common, i.e., industry-wide’ benefits in such collaboration, the literature indicated that the free rider problem is unavoidable. In this paper, however, we suggest that while collaborating, the firm also learns firm-specific knowledge, experience, and know-how, which can be directly utilized for its own internal improvement. That is, the collaboration between firms provides them with not only ‘industry-wide,’ but also ‘firm-specific’ benefits. Our analysis shows that if there indeed exist two types of benefits simultaneously, depending on the balance between the two, the free rider problem can be mitigated or even eliminated.

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