Competitive Embeddedness and the Emergence of Interfirm Cooperation

How does a history of competition between two economic actors affect their willingness and ability to work together for mutual benefit? Existing theory and research offer mixed predictions and answers. The competitive embeddedness hypothesis suggested here postulates that the likelihood of cooperation between two firms is positively related to the intensity of competition between these firms in the preceding period. The likely mechanisms leading to this are familiarity and knowledge-based trust, both of which are greater between competitors than between non-competitors or two randomly selected actors. Analysis of investment syndicates in venture capital industry supports the competitive embeddedness hypothesis. The hypothesis holds independently of business culture and of the industry's development stage.