Competition and Cooperation

When do competitors share assets and other opportunities for mutual gain? Conversely, when do they prefer to distinguish themselves by establishing firm boundaries that produce a minimum of sharing or cooperation despite potential gains from trade? Why, for example, do competing law schools in a single city cooperate so little in offering joint programs and economizing on certain costs even as they use the same casebooks in their courses and borrow from one another’s libraries? Why do two competing auto makers rarely sell one another components or use the same expert advertising agency or law firm but then quite often equip their cars with identical tires or consider the same architect when planning new office buildings? The literatures on the boundaries of the firm and on conflicts of interest do not much investigate these fundamental questions, and other literatures, such as that which explores exclusive dealing arrangements, touch on the puzzles associated with these questions in but passing fashion. My focus in this Essay on the nature of the relationship between cooperation and competition is in many ways an attempt to interest those who work in law in what economists think of as the “make-orbuy” decisions of firms. I also aim to advance our thinking about these decisions. The make-or-buy expression draws attention to the choice between an organization’s internal expansion on the one hand, and its ability to purchase from externally organized producers on the other. Part of my claim, or at least of my starting point, is that the make-or-buy decision is influenced by an apparent disinclination in some cases to share sources of supply with one’s competitors. This influence might lead firms to choose between making or not, which is to say between expansion on the one hand and contentment or passivity on the other. Firms may eschew the alternative of expanding by way of purchasing from external suppliers.