Knowledge and Economic Organization: An Application to the Analysis of Interfirm Collaboration

Abstract

Transactions cost analysis provides incisive analysis of the factors influencing the relative efficiencies of firms and markets in organizing economic activity. However, it is less successful in its analysis of interfirm collaboration: a characteristic feature of industrial organization in the advanced economies of the world. To shed greater light upon the formation and performance of intern collaboration, this chapter looks to the emerging knowledge-based view of the firm to extend and augment transaction cost explanations. Focusing upon knowledge integration as the essence of production, we shall establish the conditions for the efficiency of knowledge-based production. While firms have advantages in establishing and maintaining the mechanisms for knowledge integration, incongruence between firms' product domains and their knowledge domains offers opportunities to improve the efficiency of knowledge utilization through collaborative alliances. These advantages are enhanced where there is uncertainty over future knowledge requirements, and where new products offer early-mover advantages.