The Logic of Cooperating With Your Competitors

Consortia are alliances of rivals who join forces to leverage their collective power and obtain advantages over rival firms that have not joined them. It seems strange for competing companies to forth cooperative ventures together, but here's why competitors might form strategic alliances.

Preemptively Defend Against Competition

Consider blockchain technology, where many of the core technologies are open source, and owned by no centralized entity. Competing firms can preemptively insure against wars of attrition by creating standards-based consortiums. This lowers the risk that a competitor will hijack and co-opt an open source standard into a personal monopoly.

Today, the Fortune 500 is moving forward with ambitious experiments in blockchain technology. With over 200 organizations in the Enterprise Ethereum Alliance, this seems like a good example of companies preemptively defending themselves against technological rivalry. By coordinating R&D from a shared set of standards, competing firms in the Enterprise Ethereum Alliance can avoid the risk of costly patent wars by agreeing on a shared technological standard upfront.

Insure Against an Uncertain Future

Once a technological standard has been established, it is very difficult to defect from it. Given the introduction of a new technology, such as the CD, firms form consortiums to coordinate downward compatibility to insure that future innovations, such as the Blue Ray Disk, conform to the same standard.  

Lower Financial Risk and Share R&D Costs

Organizations are increasingly specialized, and it makes financial sense to outsource non-speciality tasks to other companies. This is especially true when the bootstrap cost of R&D is high. [1]

Impose Downstream Pricing Pressure

By combining resources across different stages of the value chain, a consortium can use their combined purchasing power to demand better deals from their downstream suppliers. [2]

Strategies for Success

Add a research college as a consortium member. This signals that the project is in an R&D stage, which can lessen the fear of rivalries when competitors are also parties to the consortium. [3]

[1] Elmuti, Dean & Kathawala, Yunus, 2001. An overview of strategic alliances. Management Decision. 39. 205-218. 10.1108/EUM0000000005452.



← View all posts