3.8 Article

Collective Action Problems and Resource Allocation During Market Formation

Journal

STRATEGY SCIENCE
Volume 5, Issue 3, Pages 245-270

Publisher

INFORMS
DOI: 10.1287/stsc.2020.0105

Keywords

market formation; industry emergence; collective action; collective action problems; resource allocation; decision making; simulation

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Collective action is critical for successful market formation. However, relatively little is known about how and under what conditions actors overcome collective action problems to successfully form new markets. Using the benefits of simulation methods, we uncover how collective action problems result from actor resource allocation decisions interacting with each other and how the severity of these problems depends on central market- and actor-related characteristics. Specifically, we show that collective action problems occur when actors undervalue the benefits of market-oriented resource allocation and when actors contribute resources that are imperfectly substitutable. Furthermore, we show that collective action problems occur when actors are embedded in networks with others sharing a similar role in market formation. Collectively, our findings contribute new insights to organization theory regarding collective action and market formation and to strategy on value creation and strategic decision making regarding resource allocation.

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