Cooperation between rivals: Informal know-how trading

Abstract

“Informal” know-how trading is the extensive exchange of proprietary know-how by informal networks of process engineers in rival (and non-rival) firms. I have observed such know-how trading networks to be very active in the US steel minimill industry and elsewhere, and they appear to represent a novel form of cooperative R&D.When one examines informal know-how trading in the framework of a “Prisoner's Dilemma”, real-world conditions can be specified where this behavior both does and does not make economic sense from the point of view of participating firms. Data available to date on the presence and absence of such trading seem to be roughly in accordance with the predictions of this simple model.Although presently documented only as a firm-level phenomenon involving the trading of proprietary technical knowhow, informal know-how trading seems relevant to (and may currently exist in) many other types of situation. Indeed, it may be applicable to any situation in which individuals or organizations are involved in a competition where possession of proprietary know-how represents a form of competitive advantage.