Co-operative Agreements and the Organization of Industry
P. Mariti and R. H. Smiley
The field of industrial organization involves, in major part, the study of how industry is organized and why. The organization of industry, including for example the size distribution of firms, depends in turn on how firms interact. In Markets and Hierarchies, Williamson ( 1975) has identified two major types of interaction: the marketplace (either competition between firms or single transactions between buyers and sellers), and mergers. Earlier, Coase ( 1937) identified the two methods for organizing economic activity as internal to the firm or external to the firm. This paper investigates an intermediate form of interrelationship between firms, which provides yet another way of organizing economic activity, the co-operative agreement.
It is important to state just what we mean by co-operative agreements, and to differentiate these type of agreements from other transactions. For our purposes, a co-operative agreement is any long term, explicit agreement amongst two or more firms. This agreement may or may not involve financial remuneration. There can be payment for some good or service: alternatively, the firms may agree to exchange information or other commodity or service: both are co-operative agreements. To meet our definition, the agreement must be long term: a one time purchase of goods and services
A preliminary draft of this paper was presented at the 8th Conference of the European Association for Research in Industrial Economics, September 16 & 18, 1981, in Basel, Switzerland. The Consiglio Nazionale delle Ricerche (CNR) provided funding for Professor Smiley while he was a visiting professor at the University of Pisa.