Cooperation in Developing Country Industrial Clusters: Marketing in an Age of Globalization

Abstract:

This paper develops a theoretical model to examine the conditions under which clustered firms in a less developed country may cooperate in a “joint action” to market their output in a developed country. The joint marketing initiative eliminates the role of an intermediary firm in the developed country. The clustered firms are heterogeneous in expected quality of output. The clustered firms know the quality type of other firms, but the foreign intermediary does not. The foreign intermediary, however, has a lower marketing cost than the clustered firms. Even when making favorable assumptions about intra-cluster cooperation, the model shows that joint action can only occur among high quality type firms, and only for limited parameter values. Increasing the quality differential between low and high quality firms widens the range of parameter values for which joint marketing by the high quality cluster firms takes place. It is more socially efficient for the foreign intermediary to market the cluster’s output, but the threat of joint action can lead of a redistribution of surplus in favor of the cluster.