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DOCUMENT DE TRAVAIL 1998-038

INTER-FIRM COOPERATION NETWORKS : A HISTORICAL

PERSPECTIVE

Diane PoulinZhan SuÉlie V. Chrysostome

Centre de Service, d’Orientation et de Recherche sur laCompétitivité internationale et l’ingénierie de l’entrepriseréseau (SORCIIER)

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ISBN – 2-89524-069-8ISBN -ISBN -

Série électronique mise à jour :One-line publication updated :Seria electrónica, puesta al dia

12-1998

Diane Poulin,Zhan Suand Élie V. Chrysostome

Inter-Firm Cooperation Networks: A Historical Perspective*

1. Introduction

2. The Origin of the Concept of the Network and its Emergence in Various Fields

3. The Emergence of the Concept of the Inter-Firm Cooperation Network in Economics and ManagementA. The ForerunnersB. The Triggering Factors

4. The Contribution of the New Theories of the Firm to an Understanding of Inter-Firm Cooperation NetworksA. The Transaction Costs TheoryB. The Theory of Inter-Firm CooperationC. The Quasi-Integration TheoryD. Games TheoryE. The Agency Theory

5. The Recent Resurgence of Inter-Firm Cooperation NetworksA. Regional Economy and Early Forms of Cooperation: Local Networks of InnovatorsB. The Other Forms of NetworksC. Towards the Development of a Paradigm of Networks

6. Conclusion

* The authors would like to thank the professors Alain Martel and Jorge Niosi for their comments.

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Summary

For over a decade, the concept of the network has aroused considerable interest among practitioners andresearchers in economics and management. But where did this concept come from? How was the conceptof the network introduced into economics and management? How did it evolve to the point of beingconsidered today by many firms as the key to their success? In order to answer these questions, thepresent research first carries out a chronological survey and analysis of factors that foreshadowed ortriggered the emergence of inter-firm cooperation networks. Our research then puts forward, of theconcept of inter-firm cooperation networks, a theoretical explanation drawing on the main theories of thefirm. Finally, it presents the new paradigm of networks that is emerging in economics and management,and analyses the different types of networks now common among firms.

The results of this research may be summarized as follows. The concept of the network has a longhistory. It has spread over time, particularly over the last two centuries, to a number of fields includingeconomics and management. In the latter fields, the idea of the network gained special importance in thebeginning of the 1980s, because of the major mutations of the international economic environment. Insuch a context, firms no longer could count on success merely by resorting to neo-classical economicapproaches or to policies of acquisition and merger. They therefore had to form networks of cooperativerelations.

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1. Introduction

Over the last decades, the word “network” has become ubiquitous. It is used in terms such as computernetwork, social network, postal network, telecommunications network, university network, electricalnetwork, railroad network, road network, airline network, maritime network, distribution network,purchase and sales networks, etc. One could extend to the point of boredom this litany of expressionsreferring to different types of networks in various fields of activity, expressions that have becomefamiliar to all.

While the word “network” has acquired today an importance previously unequalled, it remains vague andill defined, sometimes even used in contradictory ways. In fact, each discipline uses it in its own way.This diversity of meanings, often conflicting from one field to the other, makes it difficult to pin down.

A number of questions remain insufficiently clarified in this regard, among them the history of theconcept of the network, and in particular, of its emergence in economics and management. The presentresearch focuses on the latter problem, although with all due modesty, since the subject is vast andcomplex, and cannot here be dealt with exhaustively.

The present article aims at casting some light on the history of the notion of the network and on itsintroduction in economics and management, with particular attention to the bases and to the logic thatunderlie inter-firm cooperation networks. It is divided into four parts.

The first part deals with the origin of the concept of the network and its emergence in various fields. Thesecond studies specifically the introduction of this concept in economics and management. As for thethird, it examines the contribution made by the new theories of the firm to the understanding of inter-firmcooperation networks. Finally, the fourth section analyses the recent resurgence of cooperation networks,with emphasis on their present and varied forms, and on the theories to which they have given rise.

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2. The Origin of the Concept of the Network and its Emergence in Various Fields

In his work on networks and social issues (Les réseaux et les enjeux sociaux, 1993), Henry Bakis outlinesthe history of the concept of the network. While this concept is not a new one, and has spread graduallyover the centuries to a variety of fields, thus acquiring broad connotations, it is essentially in the 18thcentury that it started penetrating into professional areas, such as the military field, town and countryplanning, medicine, astronomy, topography and economic geography.

This process continued in the 19th century, for instance in regional transport and telecommunications. Inthe latter field, the introduction of the concept of the network, in the mid-1800s, was partly linked to thehistory of the telegraph, and appears to have taken place at the initiative of an American technician,W. F. Channing. Indeed, it is in America, in the end, that this concept attained a degree of hegemonyunparalleled in the present century.

In the 20th century, this concept underwent an extraordinarily rapid multidisciplinary development.Without attempting to survey the connotations it acquired during our century in all the fields mentionedabove—as this would be an encyclopaedic task—it appears necessary nonetheless to consider thecontents of this concept in certain key fields, such as computer science, mathematics and sociology.

Already used in mathematics in the 18th century (Euler, 1736) and early 20th century (Sainte-Lagüe,1926), the concept of the network (or graph) assumed major importance in the mathematical disciplinesafter World War II. From then on, this concept pervaded the field of operational research almost from itsbirth. It was at the origin of many applications in operational research, as can be seen in the publicationsof different researchers who worked on the theory of graphs, such as Berge (1958), Roy (1964), Biggsand Lloyd (1976) and Harary (1965).

Computer science is also today one of the fields in which the concept of the network is most applied. Itconsiders the network as an aggregate of transmitters, processors and receptors tightly interconnected forthe sole purpose of treating rapidly enormous quantities of complex information.

In sociology, the theory of graphs was adopted as early as the 1950s by a group of sociologists usingmathematical methods. First using the term network as a mere metaphor, they came later to apply thelogic of networks to represent social ties between individuals (Berkowitz, 1965). This group grew to thepoint where analysis of networks, from the 1970s on, became an important area of sociology—witnessthe studies of White (1970; 1976; 1981), Freeman (1979), Freeman, Borgatti and White (1991), and Burt(1982; 1992). One of these authors eventually created a journal entitled Social Networks, specificallydevoted to the study of such networks.

In the light of the above survey, it is admittedly very difficult to determine precisely how the concept ofthe network moved from one discipline to the other. All the more so since certain disciplines witnessed asimultaneous evolution of the concept. It is possible, however, to identify, from one field to the other, acertain number of elements characteristic of the concept of the network. These are: the system,interconnections, poles of interconnection (nodes) or actors that are members of the system, links andflows.

Thus from the field of the military to that of sociology, through topography, geography, town and countryplanning, medicine, telecommunications, computer science and mathematics, the network is alwaysperceived as a system, that is, as a complex entity of mutually interacting elements (Bertalanffy, 1956).This conception of the network obviously calls for an important observation: a network is not a merecluster of isolated elements, but rather a harmonious and well-organized whole, in which the significance

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of each component rests upon its contribution to the conservation and development of the whole (Angyal,1941).

At the same time, the conception of a network as an entity, a well-organized totality, necessarilypresupposes the existence of harmonious links between the various components or elements of thistotality. In other words, the existence of a network implies an interconnection between different poles ofaction interlinked and interacting through a flow of exchanges of various types.

For instance, in town and country planning, the road network is a system composed of towns linkedtogether by roads, on which users go from one town to the other. In this example, the towns represent theinterconnection poles or nodes, the roads represent the links and the users represent the flow.

The introduction of the concept of the network in sociology shows that the relevance of this concept isnot limited to the above mentioned traditional fields, but also extends to human social relations. Thenodes of a network no longer are necessarily geographical liaison points or objects, but can be also, andabove all, true social actors, that is, humans who give life to the network through their social interactions.

In other words, the emergence of the concept of the network in sociology marked an evolution in theunderstanding researchers had of the nature of poles of interconnection (nodes) within a network. Theseare no longer perceived exclusively as static (inactive) and non-social (inert) elements, but also andmostly as dynamic (active) and social (human) interconnection poles, that is, as real social actors. Thelogic of the network is thus no longer confined to a static and non-social system, but also extends to adynamic and social system, which in fact is the main subject of sociological studies.

The emergence of the concept of the network in sociology was bound to further its emergence ineconomics, since these sciences are akin and quite naturally influence each other. However, thisinterdisciplinary influence was not the only factor in play.

To conclude the first part of this research, Table 1 presents a synthesis of the different conceptions and ofthe different types of networks, as well as the characteristics of each, in some of the fields consideredabove.

Table 1: Analysis of the Emergence of Inter-Firm Cooperation Networks

Fields of activity Definition of the network Type of network Characteristics of the network Contribution to the emergenceof inter-firm cooperation

networks

Military and town andcountry planningfields

A totality of fortifications or ofinterconnected roads

Fortifications networkRoad network

Interconnection nodes, links, flowStatic and non-social network

Network architectureInterconnections

Mathematics Representation of pointshaving links between them

Network of points or graph Points of interrelation, linksStatic and non-social network

Network architectureInterrelations, links

Medicine A system of neuronsinterconnected by nerveimpulses, i.e. electrical waves

Neural network System, links, flow, poles ofinterconnection (non-social and dynamic)Dynamic and non-social network

Network architecture, nodeInterconnections, flow, links

Transport andcommunications

A totality of linksTransport and communicationlinks between different points

Communications network System, links, flow, poles or points ofinterconnection (non-social and static)Non-social network

Network architectureInterconnections, flow

Sociology Social structure composed of afinite sum of individuals havinga finite sum of social relations

Social network Structure, links, social relations, flow,individual, active poles of interconnectionDynamic and social network

Network architectureSocial interactionsApplication of the concept ofthe network to relationsbetween social actors

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3. The Emergence of the Concept of the Inter-Firm Cooperation Network in Economicsand Management

A number of factors, aside from the influence of sociology, fostered the emergence of the concept of theinter-firm cooperation network in management and economics. These factors are set out below in twoparts: on the one hand, those which foreshadowed this emergence, and on the other those, associated withthe new global economy, which triggered it.

A. The Forerunners

The history of economic thought shows that the concept of the network was for many years virtuallyignored in economics and management. It appears that only a few isolated authors used this concept,without always giving it an importance comparable to that it had acquired in the fields discussed above.Among these authors, three deserve mention for the contribution they made to the emergence ofnetworks: the philosopher Saint-Simon in the middle of the 19th century, and the researchersRoethilsberger and Dickson in the first half of the 20th century.

Saint-Simon had a particularly fruitful, organicistic vision of the concept of the network, a vision whichimpelled his disciples to develop, from the 1830s on, a genuine philosophy of the network that pervadedat the time various fields of activity, including economics. The basic principle that underlay thephilosophy of the network in Saint-Simon’s school of thought was that the multiplicity of relations andthe phenomenon of circulation have the effect of generating the greatest ideas and projects. For thesethinkers, it was therefore imperative “to put everything in relation with everything in order to generate amovement of circulation of persons, goods, capital, ideas and knowledge” (Dupuy, 1995). In this spirit,the disciples of Saint-Simon actively promoted all kinds of networks, including in banking and finance.In the Encyclopaedia Universalis, Dupuy states that they seem to have influenced, in the 19th century,the American precursors of the concept of the network in the field of urban architecture.

Roethilsberger and Dickson (1939), in the wake of Mayo’s work on informal phenomena within theorganization, were able to demonstrate the existence of what they called the “informal network” in theorganization. Guided as it was by the tenets of behavioural science, their study deeply marked the veryconception of human resources management. It has remained to this day a major preoccupation in thework of a number of researchers (Krackhardt, Hanson, 1993).

While the ideas of Saint-Simon in 1830, and those of Roethilsberger and Dickson in 1939, undoubtedlycontributed to the emergence of the concept of the network in economics and management, they seem tohave been almost disregarded at the time they were developed.

Indeed, the ideas of these authors had little impact on the organization of the economy and ofmanagement. This was mainly due to the eminently hegemonic character of the economic ideas thatprevailed in the 18th and 19th centuries. From the time of the famous Scottish economist Adam Smithuntil the decades following World War II, the world economy was particularly dominated by aneconomic individualism grounded in the search for maximum profit by individual and autonomouseconomic actors engaged in sharp competition. Given such a situation, where economic actors were ingeneral obsessed only by their individual interests, and where those operating in the same sectorperceived each other as economic opponents, one can readily understand that for a long time there couldhave been no opening for the emergence of inter-firm cooperation networks. The economic systemresembled a kind of jungle where each firm was engaged in a merciless battle with others to ensure itssurvival and development. This was of course a struggle akin to economic cannibalism, in which large

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firms did not hesitate to crush smaller ones in order to appropriate whatever favourable economicposition the latter had secured. This phenomenon was especially conspicuous in the United States, whereantitrust laws, developed initially to protect small firms, in fact further delayed the formal organization ofinter-firm cooperation networks.

The dominant influence of the ideas of classical and neo-classical economics stifled the development ofthe concept of the network put forward by Saint-Simon in 1830 and, consequently, delayed considerablyits emergence in economics and management. It was only much later, in the last quarter of the 20thcentury, that the idea of inter-firm cooperation networks reappeared among researchers in economics andpractitioners of management, because the ideas of classical and neo-classical economics could not meetentirely the interests of economic actors. It is a fact that the organization of economic activities by way ofinter-firm cooperation networks allows economic actors to overcome economic difficulties that classicaland neo-classical economic behaviour cannot resolve.

The inability of classical and neo-classical economic tenets to meet wholly the concerns and interests ofeconomic actors was one of the main factors in the recent resurgence of the concept of the network ineconomics and management. Given the mutations in the economic environment, regulation of the marketthrough prices, as well as competition between individual and autonomous economic actors (or firms)with a view to maximum profit no longer appear to be adequate means of ensuring the survival of firms.

On the theoretical level, this analysis obtains the assent of more and more researchers. Nelson and Winter(1982), Rosenberg (1982), Elster (1983), Dosi, Freeman and others (1988) have shown, on the basis ofempirical studies, that economic actors are not entirely rational, and that in general their economicchoices reflect a limited rationality, because they only have limited knowledge of the market. Theseauthors also believe that competition on the market (through prices) does not constitute the only form ofcoordination of economic relations; indeed they advocate certain forms of cooperation between firms.For instance, technological alliances between firms are considered a favourable alternative to the ideas ofclassical and neo-classical economics, in that they reduce R&D costs and uncertainties, and also allowfirms to adapt to the speed of technological evolution (Niosi, 1995).

These views account well for the behaviour of the economic actors who sought more satisfactory modesof economic regulation than those derived from debatable classical and neo-classical economicprinciples. A number of American firms, no longer able to survive today through the sole recourse tothese ideas, gradually adopted other economic approaches and new organizational forms more likely tobring them success. One of these early approaches was cooperation between firms, the development ofwhich later generated the different forms of inter-firm cooperation networks.

A major feature of industrial economy, and one to which Schumpeter (1911, 1942) devoted several of hisworks, is the fact that efficiency increases with the size of economic units. This phenomenon, particularlymanifest initially in R&D (Scherer, 1970), played an important role in the emergence of networks ofinter-firm relations. These firms engage in relations of cooperation and thus form large-scale economicsystems, so as to benefit from economies of scale and of complexity, and to be more efficient (Niosi,1995). These economies of scale and complexity (Baumol, Braustein, 1977) provide advantages thatthese firms could not enjoy if they each behaved as autonomous and individual actors, according toclassical and neo-classical creed. It is appropriate to note here that industrial economics represented asharp departure from neo-classical economics.

The ideas of industrial economics were thus an important factor in the emergence of inter-firmcooperation networks. Other factors, however, intervened in this process.

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B. The Triggering Factors

The development of technology has made of our world an ever-smaller global village, the economy ofwhich (Beck, 1994) is distinguished by fierce competition no longer limited by national boundaries. Theconquest of foreign markets has become a leitmotif for many firms, but at the same time, it represents achallenge difficult to meet alone. These firms no longer can restrict themselves to their domestic market,nor can they continue to rely on exclusive access to markets that once were their preserves. Their successdepends on their achieving world-class positioning.

The lightning-fast flow of information has brought clients much closer to firms, and geographicalremoteness no longer can prevent clients from making the most stringent demands. The satisfaction ofthese demands increasingly requires the working out of new management concepts, such as “just in time”or “total quality,” concepts that rest entirely or in part on the establishment of very closeinterorganizational links. For their survival and development, many firms now need ever-growing R&Dbudgets, which are difficult to sustain, even for large corporations. Thus, these large corporations can nolonger rely only on their own expertise and their own drive towards technological innovation, since theyrisk otherwise falling behind in the race for competitiveness.

All these phenomena, representative of the new socio-economic trend that researchers generally call the“globalization of the economy and the markets,” go to prove to what an extent the present environmentno longer allows firms to go it alone in their struggle for competitiveness (Axelrod, 1984). Given such aneconomic environment, one readily understands the increasing interest shown by economists andmanagers for the network as a mode of organization. Contrary to the fortress firm (Butera, 1991), it is atype of organization characteristically wide-open to other economic actors (firms) as well as topartnerships, an openness that is paramount in terms of survival (Sérieyx, 1993; Poulin, Montreuil,Gauvin, 1994). Moreover, it should be noted in this regard that the advent of network-type organizationhas been furthered by the many extraordinary facilities developed in our day in the field oftelecommunications.

In a word, the globalization of the economy and the markets is one of the basic factors that triggered aresurgence of networks in economics and management. It represents therefore an important step in thehistory of inter-firm cooperation networks. Another element worthy of note is the influence of Japanesefirms, as their success rests in part on the network structure they have always favoured.

The development over the last decades of large Asian firms—based as they are on a structure of inter-firm cooperation networks—was undoubtedly a major factor leading to the tremendous resurgence ofsuch networks in Western countries. Indeed, over that period, Asian firms were not only extremelysuccessful, but also were unaffected by the kinds of problems that plagued Western firms. Contrary towhat certain Western economists believe, this is because they never were organized on the basis of neo-classical economic principles, since they were not individual actors in the market (Aoki, 1984; Goto,1982). These large Asian firms are organized on the basis of networks of mutual relations, whichexplains their achievements and similarly impels Western firms to resort to this mode of organization. Itis reasonable to assume, therefore, that the success of Asian firms furthered the emergence of inter-firmcooperation networks in the West.

In order to understand the growth of such networks in Asia, a look at the background of the organizationof large Asian firms may be instructive.

The organization of these firms is not rooted in a theory of the firm or in recent business approaches. Itgoes back much further into the cultural past of Asians, indeed to the pre-modern period (Biggart,Hamilton, 1992). The very notion of the network is one of the central values of Asian culture. The latter

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is characterized by a kind of communitarianism, in which great importance is given to relations betweenindividual members of the community, and where decision-making based on the consensus and theparticipation of the said members is encouraged (Alston, 1986). Among the Chinese, for instance, socialnetworks—that is, relations between members of society—are of the utmost importance, since they areinstitutionalized and, as such, determine the social norms on which society must rest (Biggart, Hamilton,1992; Fei, 1992). Likewise, Koreans favour work relationships between close relatives or friends, sincethe privileged relations between both parties are perceived as exercising pressure upon the worker. Sincethe latter is at the same time a friend or relative of his employer, this compels him to perform well inorder to avoid social embarrassment.

These cultural values based on social networks (networks of relations between individuals) influencedenormously the organization of economic activity in Asia. They explain the existence of those networksof commercial relations that ensured the success of both Chinese itinerant merchants and Japanesesedentary merchants in the pre-modern era (Biggart, Hamilton, 1992). This network-based organizationof economic activities survived the advent of the modern era, and is pursued to our day, which explainswhy large firms in China, Japan and Korea are organized into inter-firm cooperation networks.

Such networks differ nevertheless from country to country, as do their respective historical evolutions.Thus in Japan, the present kigyo shudan, which are fairly complex networks of different interests, comefrom the zaibatsu, which are pre-World War II conglomerates of family interests. In South Korea, thechaebols are networks of medium-sized firms controlled by one person or one family through a motherfirm (holding). In Taiwan, the jituanqiye are conglomerates composed of a small number of family firms.

To sum up, while the organization of Asian firms is an original phenomenon rooted in local cultures andexperiences, the success of Asian networks during a period of crisis in Western neo-classical economiesinevitably promoted network-type organization in the West. The Asian experience thus reinforced theperceptions of Western firms concerning the inability of neo-classical economic methods to meet theirinterests wholly.

In brief, the influence of large Japanese firms, along with globalization, the industrial economy, and theinadequacies of classical or neo-classical economics all are major factors that favoured the resurgence ofinter-firm cooperation networks.

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4. The Contribution of the New Theories of the Firm to an Understanding of Inter-FirmCooperation Networks

The new theories of the firm that favour the comprehension of inter-firm cooperation networks are thefollowing: the transaction costs theory, the theory of inter-firm cooperation, the quasi-integration theory,the games theory and the agency theory.

A. The Transaction Costs Theory

The transaction costs theory, first put forward by Coase (1937) and mainly worked out by Williamson(1975, 1979, 1985, 1987, 1990, 1994), bases its analysis on the transactions between different economicactors. It holds that, in order to increase social wellbeing, it is essential that economic actors minimizethe cost of their transactions, by choosing as the governance mode of these transactions (mode ofeconomic regulation) the economic institution that allows the most substantial economies in transactioncosts. Williamson (1975) adds that this economic institution may be either the market or the hierarchy.He draws a distinction between two types of transaction costs that are independent: on the one hand, thetransaction costs ex ante, associated with the negotiation, the formal drawing-up and the guarantee of agovernance mode, and on the other hand, the transaction costs ex post, associated with the organizationand adequate functioning of the governance mode chosen.

Williamson states that, in order to choose the governance mode permitting the most substantialeconomies in transaction costs, one must carry out a comparative study of the transaction costs generatedby each governance mode, so as to opt for the one with the lowest transaction costs. Such a comparativestudy obviously necessitates an evaluation (measurement) of transaction costs associated with eachgovernance mode, an evaluation which itself, in Williamson’s view, rests on the analysis of certainphenomena characterizing economic transactions or their actors. These phenomena are socio-economic;in this respect, Williamson moves away from certain principles of neo-classical economics and isconspicuous by the realism of his thought. These phenomena, which neo-classical economics seem todisregard, represent the main hypotheses of transaction costs economics. They are: limited rationality(Simon, 1955), the specific character of many of the assets involved in economic transactions, theeventual occurrence of opportunistic behaviour due to the specific character of the assets or to limitedrationality, the impact of management problems.

Challenging the tenets of neo-classical economics that postulate total rationality, Williamson, like Simon,believes that every economic actor (human being), being endowed with limited rationality, cannot foreseein his contract all the events or decisions issuing from his co-contractors or from his environment. Hetherefore concludes that, owing to limited rationality, the economic actor faces uncertainties that imposeon him transaction costs necessary to protect himself; the said actor must accordingly seek a governancemode that reduces these uncertainties while minimizing transaction costs.

Similarly, going against neo-classical economic dogma, which holds that goods involved in transactionsare standard goods, Williamson (1985) thinks that many assets involved in contractual transactions havea specific character. He identifies five types of asset specificity, i.e. physical asset specificity, sitespecificity, human asset specificity (human resources), dedicated assets (physical specificity of site) andintangible assets (specificity of brand or clientele). Williamson believes that the specificity of assetsmakes it difficult to use them again in other contracts. He believes that this difficulty, or impossibility, ofreutilization of specific assets could eventually foster opportunist behaviour among co-contractors; eachwould then seek to exploit weaknesses in the position of the other. For protection against such

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opportunistic behaviour, either ex ante or ex post, each co-contractor must seek the governance modethat, at the same time, minimizes the transaction costs of such protection.

There is one last major phenomenon, relating to the choice of governance mode, which is not taken intoaccount by neo-classical economics: the impact of management problems. Williamson points to incentive(motivation) for economic actors as well as to bureaucracy as the two main management tools, thehandling of which may cause problems generating transaction costs. More precisely, he argues thateconomic actors who own their business have a stronger incentive (motivation) to find solutions that botheconomize on transaction costs and avoid bureaucracy than economic actors who are not owners of theirbusiness. He concludes that this reality strongly influences the economic actor’s choice of the governancemode of his transactions.

To sum up, for Williamson, limited rationality, specificity of assets, eventual opportunistic behaviour andthe incidence of management problems are all socio-economic phenomena generating transaction costs.The economic actor must measure these various transaction costs as a whole for each governance mode,so as to choose the governance mode for which these transaction costs are the lowest.

However, in the end, Williamson reaches the conclusion that the governance mode that most generateseconomies in transaction costs is the hierarchy. He thinks that internationalization of transactions in asingle firm, through integration either vertical (upstream or downstream) or horizontal, is a governancemode that relieves the economic actor from the many uncertainties resulting from the inadequacies of themarket. In Williamson’s opinion, the hierarchy lessens the likelihood of opportunistic behaviour flowingfrom the specificity of assets and from limited rationality, and decreases the likelihood of managementproblems related to motivation. In other words, Williamson believes that the hierarchy (the firm) is themode of economic regulation that permits to account for the behaviour of economic actors.

Obviously, such a view could not escape some degree of criticism. Many researchers think that thehierarchy, as a governance mode, cannot account effectively for the behaviour of economic actors(Lundvall, 1990; Teece, 1986; Niosi, 1995). This stand is quite justifiable, given that since the mid-1980s, there has been a vast and uninterrupted movement of externalization of transactions, whichbrought about a paring down of the firms involved.

It has also been argued that transaction costs economics focuses too much on the specificity of assets andthe reduction of transaction costs, while underestimating the importance of production costs (Baudry,1995) or of other considerations of a strategic nature (Kogut, 1988; Dussauge and others, 1988; Noël,Zhang, 1993).

The proponents of transaction costs economics are also taken to task for their apparent lack of precisionand realism (Kay, 1992; Niosi, 1995) as regards some of their postulates. It is undeniable that theirattempts to establish their theory on an empirical basis are fraught with difficulties (Baudry, 1995).Indeed, they cannot offer a precise measurement for transaction costs, nor can they clearly distinguishtransaction costs from production costs.

Finally, Williamson appears not to be particularly interested in the mode of governance intermediatebetween market and hierarchy, although he did recognize, in a book published in 1985, the existence ofsuch a governance mode, which he baptized bilateral governance. Yet, economic realities demonstratethat many economic actors opt for the different forms of the mode of governance intermediate betweenmarket and hierarchy.

Despite all these criticisms, transaction costs economics is of real value in many respects. It is an originalapproach, which gave greater depth to economic thought by taking into account elements neglected byneo-classical economics. From that viewpoint, transaction costs economics not only brought economics

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and management closer together (Ghertman, 19941) but also afforded considerable insight into theintegration of firms.

As concerns more specifically the analysis of inter-firm cooperation networks, transaction costseconomics played a crucial role, in that it furthered the understanding of such networks and particularlyof their advantages. In crediting the hierarchy, and more precisely integrations—whether of thehorizontal or of the vertical type—with being the mode of governance which most minimizes transactioncosts, transaction costs economics admits the conclusion that the formation of a network (either verticalor horizontal) of inter-firm cooperation may be justified by the wish to minimize certain transactioncosts. Clearly, such a justification of the development of networks thoroughly overturns the sacrosanctprinciple of neo-classical economics underlying the powerful antitrust legislation of the sixties. Recallthat these laws perceived the creation of networks as attempts to achieve a monopolistic grasp upon themarket. In other words, transaction costs economics weakened the antitrust legislation that impeded theformation of networks. In so doing, it was instrumental in the toning down of this legislation from theseventies on, a development that to some extent favoured the formation of vertical and horizontalnetworks.

One may conclude that, while Williamson showed no salient interest in inter-firm cooperation networks,his transaction costs theory nonetheless made a major contribution to the understanding of the emergenceof these networks. Another theory that also made a significant contribution to this end was Richardson’stheory (1972) of inter-firm cooperation.

B. The Theory of Inter-Firm Cooperation

The theory of inter-firm cooperation originates from researches by Richardson (1972). Pondering therepartition of activities in an economy, he came to question the transaction costs theory initiated byCoase (1937), which Williamson (1975, 1985) later advocated. Richardson (1972) believes that thetransaction costs theory does not allow a perception of the full complexity of inter-firm cooperationrelations, but rather impoverishes it. He thinks that the activities of organizations are mutuallycomplementary and that accordingly they need coordination. He then draws a distinction between threetypes of coordination mechanisms: the firm (hierarchy), the market (price mechanism), and inter-firmcooperation (Richardson, 1972). He believes that one or the other of these mechanisms is appropriate,depending on whether the activities of organizations are complementary, and whether or not they requireex ante coordination. Richardson (1972) states, however, that there is no clear boundary between thesethree coordination mechanisms, which he perceives as a continuum.

As a result of these researches, Richardson does not merely challenge the transaction costs theory; healso sets the bases of a real inter-firm cooperation theory by introducing into his analysis a newcoordination mechanism different from both the firm and the market, that is, inter-firm cooperation.

In the framework of the present study of the history of inter-firm cooperation networks, an analysis ofRichardson’s work (1972) allows the following conclusion. By presenting for the first time inter-firmcooperation as a coordination mechanism of economic activity, Richardson also laid the bases of a theoryof inter-firm cooperation networks, since his researches made it possible to perceive these networks as anaggregate (intertwining) of different forms of cooperation.

However, the main shortcoming of Richardson’s work (1972) is his failure to indicate clearly the meansof inter-firm cooperation. In other words, he does not specify the different forms which inter-firmcooperation may take, but is content to point out that the institutional counterparts of this form of

1 M. Ghertman is the author of the foreword to the French edition of O. Williamson’s work, published in 1994.

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coordination are complex relations of cooperation and affiliation. Aoki’s research (1986, 1988)addressed specifically these critical issues. This author strove to give full legitimacy to inter-firmcooperation theory, by carrying out exhaustive studies of certain forms of inter-firm cooperation, thusfostering a better comprehension of the emergence of networks.

C. The Quasi-Integration Theory

Aoki (1986, 1988), whose work is deeply indebted to that of Richardson (1972), considers inter-firmcooperation as a coordination mechanism, which he positions between the market and the hierarchy. Hegives it the name of quasi-integration. He discriminates three forms of this coordination mechanism, thatis, three forms of inter-firm cooperation: authority, or subcontracting stricto sensu, which he perceives asa vertical quasi-integration; incentive, which he perceives as an oblique quasi-integration; andconfidence, which he does not consider to be a form of quasi-integration. As an outcome of hisresearches, Aoki (1986, 1988) indicates that quasi-integration is an organizational form preferable to themarket and to the hierarchy, since on the one hand, it remedies the deficiencies of both while combiningtheir advantages, and since on the other, it generates a surplus of wealth called relational quasi-rent.Quasi-integration is also a stable mechanism, according to Aoki.

Aoki’s main contribution to the understanding of the emergence of inter-firm cooperation networks washis lucid classification of different forms of inter-firm cooperation, forms that together constitute anetwork. Another remarkable contribution was his methodical formalization of the “faire faire” strategyof “having things done,” as against the “faire” strategy of “doing them,” the former being one of themain strategies used in inter-firm cooperation networks. Aoki’s work (1986, 1988) on inter-firmcooperation was essentially devoted to an in-depth study of subcontracting, of which he worked out anexhaustive typology.

While Aoki’s remarkable contribution, focussed on subcontracting, provides some explanation of the riseof inter-firm cooperation networks—in that the regulation of economic activity is displaced from a logicof integration (the “faire” strategy) to a logic of quasi-integration (the “faire faire” strategy)—it has notbeen spared some measure of censure. Indeed, his studies (1986, 1988) seem to be restricted to onegeneric form of inter-firm cooperation, that is, quasi-integration (vertical or oblique). This does not allowa full understanding of the forms of inter-firm cooperation that initiated the rise of inter-firm cooperationnetworks. However, before we consider these other forms of inter-firm cooperation which afford a globalview of the rise of such networks, it appears necessary to analyse the theory of games and the agencytheory, since they provide respectively a more thorough study of vertical and of oblique quasi-integration, and since they also make a significant contribution to the explanation of the emergence ofnetworks.

D. Games Theory

Games theory is particularly relevant to the study of inter-firm cooperation (Axelrod, 1984), inasmuch asit offers solutions to problems which arise in situations akin to quasi-vertical integration (that is,situations of subcontracting stricto sensu, i.e. authority), problems that hinder inter-firm relations. Usinggames theory, one can argue that quasi-vertical integration, that is, subcontracting, is similar to thepredicament known as the “prisoner’s dilemma” (Baudry, 1995). In such a predicament, the order giverand the subcontractor each pursue his own individual interests and adopt an aggressive strategy onetoward the other. The order giver often changes his subcontractors and in each instance chooses the“lowest bidder”; at the same time, the subcontractor, who for his part is never sure of obtaining a furthercontract, accepts orders while knowing that he would cheat so as to evade them in regard to the quality ofthe products he supplies. Axelrod (1984) applied games theory to such a situation and managed to show

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that, while individualistic and non-cooperative behaviour of the contracting parties might be justified in aone shot game (the static version of the game), over the long term, cooperation is more fruitful, sinceeach party gains more than if it had adopted an individualistic approach.

Thus, in the theory of firms, games theory introduces the notion of a true relation of cooperation. Such arelationship no longer amounts to a simple relation of order giver to subcontractor, but rather represents areal relation of cooperation between firms. Obviously this is an important evolution in inter-firmcooperation relations, which thus mark a remarkable progress in regard to vertical subcontracting (quasi-integration or authority).

With regard to the present research, games theory affords an explanation of the emergence of specificcooperation networks based on an economic regulation responding to the logic of “doing together.”

Games theory, however, has been criticized for drawing too simplistic a picture of relations that mayexist between economic actors (firms), and for restricting these relations to an either-or binary mode asbetween cooperation and non-cooperation (Gugler, 1991). Similarly, this theory has been taken to taskfor its failing to indicate in which manner the cooperation it advocates could be put into effect. Theagency theory attempts to clarify this issue.

E. The Agency Theory

The agency theory (Jensen, Meckling, 1976; Fama, 1980; Fama, Jensen, 1983; Adams, 1994) is one ofthe economic models that allows a full apprehension of the second form of inter-firm cooperationidentified by Aoki (1986, 1988), i.e. incentive, or oblique quasi-integration. The agency theory, whichmany authors also call the incentive theory, furthers the understanding of the conditions of emergence ofinter-firm cooperation networks.

The agency theory argues that there is a conflict of interests between the mandate receivers (i.e. theagents) and the mandate givers, i.e. the principals (McClean Park, Conlon, 1995), and that such asituation is not favourable to the latter, since the agents have more information than have the mandategivers (Adams, 1994; Nilakant, Hayagreeva, 1994). The agency theory holds that this asymmetry ofinformation entails, for the mandate givers, the risk of not having access to all the information necessaryto ascertain whether their agents behave loyally (Adams, 1994): this is the risk of “adverse selection” oragain the “anti-selection risk” (Baudry, 1995). Furthermore, the agency theory postulates that agents andmandate givers act rationally, and that they both use the contractual process to maximize their owninterests by adopting opportunistic behaviour, behaviour detrimental to their co-contractors (Adams,1994; Nilakant, Hayagreeva, 1994). The theory specifies that, since the agents in such a situation inclineto opportunistic attitudes detrimental to their mandate givers’ interests, there is a high risk that theseagents will not make a thorough effort to manage loyally the interests of their mandate givers: this is the“moral risk” (Adams, 1994; Baudry, 1995).

The theory also considers the information available to agents—but which they do not disclose—to be acommodity, i.e. a good that the mandate givers can acquire by purchasing it from the agents.

In fact, the agency theory, which seems a priori concerned with the interests of the mandate givers, aimsat finding a form of contract that would be efficient for them (Nilakant, Hayagreeva, 1994). This wouldbe a form of contract that would minimize the mandate givers’ agency costs (related to supervision,motivation and insurance of the agent’s engagement) and that would at the same time incite the agentsboth to disclose all the information available to them and to make maximum efforts to further theinterests of the mandate givers.

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In other words, the agency theory, in the interest of the mandate givers, seeks a contractual formulasufficiently inciting to secure the agents’ loyalty. From that viewpoint, it considers that a contractualformula based on control of behaviour is preferable to the traditional contractual formula based oncontrol of results. As such, the inter-firm partnership contract seems an advisable contractual form(Baudry, 1995), since it offers a compromise between risk-sharing and incentive, fostering as it does theloyal behaviour of agents through the recourse to new elements. Of note, among these new elements, arethe increase in the duration of the contract, the renewal of the contract, flexibility on the part of themandate givers and greater autonomy of the agents, innovation incentives for the agents, recognition oftheir rights as originators of the innovation, an equitable sharing-out of the quasi-rent, etc. In a way, theinter-firm partnership contract therefore represents for the agents a premium for renouncing opportunisticbehaviour (Baudry, 1995).

All considered, the agency theory provides an explanation of the concept of inter-firm cooperation that ismore comprehensive than those afforded by games theory or vertical quasi-integration. It introduces forthe first time in the theory of the firm a new and real form of cooperation, to wit, a partnership (Baudry,1995). It shows that such a form of cooperation is preferable to subcontracting stricto sensu, since it doesnot confine itself to an inter-firm relation of a vertical type, but rather advocates more flexible relationsof inter-firm cooperation, as between equals.

The agency theory has been criticized for not lending itself to generalisation and for not being as realisticas it is claimed to be. It has been argued, on the one hand, that the implementation of an incentivecontract is probably not a sufficient means of reducing uncertainties (Nilakant, Hayagreeva, 1994), andon the other hand, that the unlimited rationality which the agency theory postulates is totally illusory.Similarly, this theory has been taken to task for focussing attention on cooperation between two types ofactors only, and therefore for not being applicable to cases of cooperative relations involving more thantwo types of economic actors.

Nevertheless, for the purposes of the present study, the agency theory has the merit of filling in part animportant gap left behind by theories of the firm previously studied here. As pointed out, the agencytheory focuses on the functioning of cooperation networks between principals and agents, and highlightscertain elements it considers essential: flexibility of the principals, equitable sharing of the quasi-rent,mutual confidence and transparency in the circulation of information, interaction between principals andagents, etc.

Furthermore, the pioneers of the agency theory were apparently the first to introduce the notion of thenetwork into theories of the firm, although this concept was not the subject of their work, nor was theiruse of the term “network” rigorous. These pioneers (Jensen and Meckling, 1976) perceived organizationsas networks of contractual relationships between individuals. To quote them: “Most organizations aresimply legal fictions which serve as a nexus for a set of contracting relationships among individuals.”This statement is particularly relevant in that the term “nexus” designates an aggregate of ties (TheConcise Oxford Dictionary, 1990), or simply a network. There is no doubt, in this light, that Jensen andMeckling bring forward a new vision of the organization and especially of the relations prevailingbetween shareholders (mandate givers) and managers (mandate receivers).

In brief, the agency theory goes much further than other theories of the firm surveyed here in itsunderstanding of inter-firm cooperation networks. Not only does it spell out how they work, but it alsoreveals the significance of a specific kind of network, i.e. partnership.

To sum up, while all the theories presented and discussed above share the same objective of optimizingthe choices of economic actors (firms), none of them is sufficiently established to afford a single yetcomprehensive explanation of the sum behaviour of these actors. As a result, certain researchers, such asParkhe (1993), advanced the notion of combining certain of these theories in order better to account for

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the economic behaviour of firms. Others believe that each theory corresponds to a precise type ofproblem of economic coordination, and thus provides an explanation of the reaction of economic actorsto such kinds of problems. Among the latter researchers, may be cited Brousseau (1993), who putsforward an analysis, at once synthetic and critical, of these main theories of the firm, and defines them ascontractual approaches that seek to elucidate the solutions adopted by economic actors in response tolimited rationality, opportunism and risk. More precisely, he suggests that routine and authority aresolutions adopted by economic actors in the face of limited rationality, while mechanisms of supervision,arbitration and incentive are solutions to opportunism. Finally, Brousseau refers to insurance mechanismsas solutions adopted by economic actors in response to risk. He then concludes that all these solutions,which he also calls coordination mechanisms, are at the same time complementary and concurrent. It isinteresting to note that one of the mechanisms of coordination advanced by Brousseau, i.e. incentive,evokes the idea of inter-firm cooperation networks, since it implies a real relationship between firms(Aoki, 1988).

One important benefit of all the theories of the firm reviewed above is that the inadequacies of some, aswell as the relevance of others, have in each case helped us understand how the step-by-step evolution ofthe economic behaviour of firms finally led to the recent resurgence of inter-firm cooperation networks.

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5. The Recent Resurgence of Inter-Firm Cooperation Networks

In the light of all the above, it is clear that the network is a phenomenon that goes back a long way ineconomics and management. However, its present explosive development dates back to less than twodecades. The following paragraphs examine the conditions under which this development took place,with emphasis on the regional economy and local networks of innovators, as well as on the differentforms of networks and on the paradigm of networks.

A. Regional Economy and Early Forms of Cooperation: Local Networks of Innovators

The resurgence of the concept of the network, in its strict sense, in economics and management, is arecent phenomenon first observed in regional economies in the mid-1980s. During that period, thespecialists of geographical and regional economics perceived technological cooperations as“agglomeration effects.”

These were considered to be a consequence of a process of geographical concentration, in which hightechnology firms benefited from research activities carried out by universities and public laboratories ofthe region, and also from government programmes that provided financial advantages (Smith, 1981;Markusen, 1986; Breheny, 1988; Saxenian, 1991; Storper, Harrison, 1991). This phenomenon ofgeographical concentration, in which the economic actors—that is, the firms, the universities and thepublic authorities in a given region—entertain technological cooperation and ties of all sorts for the sakeof regional development, does reflect accurately the logic of networks. Piore and Sabel (1984) weretherefore quite justified in qualifying this phenomenon as a local network of innovators. In so doing, theybecame the first to use the term “network” in its present meaning in economics and management.Technological cooperation has been perceived as the first form of cooperation networks. This view isnow shared by a number of researchers including Niosi (1995). The term “local network of innovators”was also gradually adopted by those involved in the implementation of governmental economic policies.

In France, for instance, in the wake of the decentralization policy adopted to further the economicdevelopment of regions, terms such as “regional innovation network” and “national innovation system”quite rapidly became popular. However, the experts in regional economy considered the networkapproach as a regional or urban phenomenon. In other words, these experts did not believe that thisapproach, and in particular as it relates to technological cooperation, could be used in an internationalcontext.

In the United States, the emergence of networks was delayed as a result of strict antitrust legislation,although there were a few instances of informal experiences with networks of professional associations(Hounshell, Smith, 1988). Only after the repeal of the legislation in 1984 did business networks developon a regular basis in the United States.

Parallel to this outline of the recent evolution of inter-firm cooperation networks, Miles and Snow (1984)have put forward a different historical interpretation of the same phenomenon that bears carefulattention. They view the network structure as a result of a long evolution in organizational structuressince 1800. They believe that, starting from an agency structure in 1800, organizations moved towards afunction structure in 1850, a division structure in 1900, a matrix structure in 1950, and will adopt adynamic structure by the next century. Their interpretation of the evolution of organizations issummarized in Table 2.

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Table 2: Evolution of Organizational Forms According to Miles and Snow (1984)

Product-market strategyOrganization

structure

Inventor or earlyuser

Core activating andcontrol mechanisms

1800 Single product or serviceLocal/regional markets

Agency Numerous smallowner-managedfirms

Personal direction andcontrol

1850 Limited, standardizedproduct or service line.Regional/national markets

Functional Carnegie Steel Central plan andbudgets

1900 Diversified, changingproduct or service line.National/internationalmarkets

Divisional General MotorsSears RoebuckHewlett-Packard

Corporate policies anddivision profit centers

1950 Standard and innovativeproducts or services. Stableand changing markets

Matrix Several aerospaceand electronicsfirms (e.g. NASA,TRW, IBM, TexasInstruments)

Temporary teams andlateral resourceallocation devices suchas internal markets,joint planning systems,etc.

2000 Product or service design.Global, changing markets

Dynamicnetwork

International/cons-truction firms;Global consumergoods companies:Selected electronicsand computer firms(e.g., IBM)

Broker-assembledtemporary structureswith sharedinformation systems asbasis for trust andcoordination.

Source: R. E. Miles, Snow C. C., Fit, Failure And The Hall of Fame, California Management Review,Vol. XXVI. No. 3. Spring 1984

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B. The Other Forms of Networks

Local networks of innovators or technological networks were the first forms of inter-firm cooperationnetworks to be identified since the resurgence of networks in economics and management. Localnetworks of innovators thus cleared the way for the emergence of several other forms of networks, astheir advantages incited their economic partners to devise a number of other forms of cooperation. Theseconstitute simple forms of networks, the many possible combinations of which generate complexnetworks of inter-firm cooperation.

Among simple forms of inter-firm cooperation networks, researchers have currently identified thefollowing: joint ventures, consortiums and licensing agreements, among others. Numerous complexnetworks deriving from these simple inter-firm cooperation networks have been identified and classifiedby Poulin et al. (1994), as appropriate, on a basis of nodes, links, relations and flows.

The different types of complex networks identified on a basis of nodes are: the industrial network,internal network, external network, business network, horizontal network, vertical network, diagonalnetwork, sectorial network, territorial network, and global network. Networks identified on a basis oflinks are: the dynamic network, flexible network, formal network, informal network, spontaneousnetwork, stable network, and structured network. As for types of networks identified on a basis ofrelations, they are: the purchase network, production network, service network, technological network,strategic network, cooperation network, and learning network. Finally, networks identified on a basis offlows are: the hierarchical network, heterarchical network, star network, industrial clan, shared-ownership network, and structural network (Poulin, Montreuil, Gauvin, 1994). Table 3 presents asynthesis of all these different types of networks, according to the partners involved, the nature of thepartnership, the raison d’être of the network, and the structure of the network.

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Table 3: Typology of Interorganization Networks

Situation of partners

Value chainSector of activityGeographical location

Characteristics of network according to nodes

Horizontal/Vertical/DiagonalSectorial/Non-sectorialLocal/Regional/ProvincialNational/International

Nature of partnership

Level of constraintsNature of constraintsDurationDegree of flexibility

Characteristics of network according to links

Formal/InformalSpontaneous/Dynamic/StableStructured/Flexible

Reason for the network

Scope of operationScheduleGoals and objectives

Characteristics of network according to relations

Outside function/Inside functionStrategic/TacticalCooperation/ Learning

Structure of network

Creation of a new entityFinancial participationInteraction between partnersEmpowerment

Characteristics of network according to flows

StructuralProperty sharingStar-shaped/Industrial clanHierarchical/Heterarchical

Source: D. Poulin, B. Montreuil, and S. Gauvin, Bâtir aujourd'hui l'organisation de demain, Publi-Relais,Montreal, 1994.

C. Towards the Development of a Paradigm of Networks

The theoretical explanation of networks, and in particular their relation to the market and the hierarchy,are widely debated among researchers. Some think that networks are a mode of economic regulationdifferent from both the market and the hierarchy. Others, more numerous, consider them as a hybridmode of regulation halfway between the market and the hierarchy. Among those, Thorelli (1986) shouldbe credited with having carried out the first in-depth studies of the concept of the network in economicsand management, whereas Piore and Sabel (1984) were the first to use the term “network” in its presentmeaning. Thorelli’s work applies perfectly to the logic of inter-firm cooperation, and as such goesbeyond previous theories towards explaining the economic behaviour of firms.

Impelled no doubt by the inadequacies of theories of the firm developed up to the 1980s, Thorelli (1986)expounded a new vision of the network in economics, in his article entitled “Networks: Between Marketsand Hierarchies.” Specifically, he proposed that the economy as a whole be considered as a network oforganizations, involving a vast hierarchy of subordination and a web of secondary networks. In so doing,he actually imparted a new content to the concept of the network. In his view, this concept refers to anaggregate of two or more organizations involved in long-term relations. This understanding of theconcept was favourably received by a number of researchers specializing in studies of the firm. Theypromptly rallied to his conception of the network, considering its contents and logic as a viablealternative to existing theories. Some of them, such a Jarillo (1988), believe that networks can be of useto managers and can strengthen the competitive position of their firms. Others, such as Borys and

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Jemison (1989), or Gugler (1991), take the same view as Jarillo but emphasize the ill-defined characterof network boundaries.

It should be stressed that the rise of networks among firms is fundamentally a phenomenon of the lastquarter of the 20th century. A survey of relevant scientific literature between 1891 and 1986 suggeststhat researchers have focused mainly on phenomena of coparticipation (Noél, Zhang, 1993), rather thanon inter-firm cooperation networks. This view is shared by several authors, including Miles and Snow(1984, 1986). The latter, it may be added, picture inter-firm cooperation networks as an organizationalform which complements and remedies the deficiencies of earlier such forms.

6. Conclusion

Over time and with increasing speed over the last two centuries, the concept of the network has spread toa great variety of fields, including transport, telecommunications, sociology, computer science, as well aseconomics and management. In the latter fields, the concept of the network has become particularlyimportant since the beginning of the 1980s.

This is due to the deep mutations that firms have had to face in the international economic environmentover the last decades in order to survive. The demands of the global economy have become such thateconomic actors no longer can achieve success by relying on economic behaviour based on the principlesof neo-classical economics. Similarly, the policies of acquisition and merger that had been perceived asan alternative and a “remedy” to the deficiencies of neo-classical economics appear not to have metadequately the hopes they had raised. These inadequacies of favourably regarded economic approachescompelled economic actors to consider, at the beginning of the 1980s, a new form of regulation ofeconomic activities, that is, inter-firm cooperation. Thus arose the phenomenon of inter-firm cooperationnetworks, which is undergoing today an explosive development.

A number of researchers took an interest in inter-firm cooperation and formulated different theories ofthe firm. While seeking an explanation of the relevance of such cooperation, they also made a majorcontribution to the understanding of the rise of inter-firm cooperation networks. Some of these theoriesare: Richardson’s theory of inter-firm cooperation (1972), the agency theory (Jensen, Meckling, 1976;Fama, 1983), Axelrod’s games theory (1984), Aoki’s quasi-integration theory (1986; 1988) andThorelli’s theory of networks (1986).

Without detracting from the importance of these theories, particular credit must be given to Williamson’stransaction costs theory (1975; 1985) for an explanation of the rise of inter-firm cooperation networks.To this end, this theory depicts the market and the hierarchy as economic regulation mechanismsoccupying respectively the two poles of a continuum, in which are found different forms of a third,intermediate, economic regulation mechanism, that is, inter-firm cooperation. It would appear that mostof the above mentioned theories of the firm draw upon the transaction costs theory.

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