Collective action and market formation: An integrative framework

• Author: Jeroen Struben,Christopher B. Bingham,Brandon H. Lee
• Published date: 01 January 2018
• DOI: http://doi.org/10.1002/smj.2694
• Date: 01 January 2018

RESEARCH ARTICLE

Collective action and market formation: An

integrative framework

Brandon H. Lee

1

| Jeroen Struben

2

| Christopher B. Bingham

3

1

Melbourne Business School, University of

Melbourne, Carlton, Australia

2

Emlyon Business School, Écully, France

3

Kenan-Flagler Business School, The University

of North Carolina at Chapel Hill, Chapel Hill,

North Carolina

Correspondence

Brandon H. Lee, Melbourne Business School,

University of Melbourne, 200 Leicester Street,

Carlton, VIC 3053, Australia.

Email: b.lee@mbs.edu

Research Summary: While extant research recognizes

the importance of collective action for market formation,

it provides little understanding about when and to what

extent collective action is important. In this article, we

develop a novel theoretical framework detailing what col-

lective action problems and solutions arise in market for-

mation and under what conditions. Our framework

centers on the development of market infrastructure with

three key factors that influence the nature and extent of

collective action problems: perceived returns to contribu-

tions, excludability, and contribution substitutability. We

apply our framework to diverse market formation con-

texts and derive a set of attendant propositions. Finally,

we show how collective action problems and solutions

evolve during market formation efforts and discuss how

our framework contributes to strategic management,

entrepreneurship, and organization literatures.

Managerial Summary: This article lays out the key con-

siderations that players operating in new markets should

contemplate when making nontrivial investments in those

spaces. As collective action problems can thwart efforts

to establish new markets, we ask: When and under what

conditions should market players collaborate rather than

act independently? And if players collaborate, how

should they coordinate to establish a new market? To

address these research questions, we develop a novel gen-

eralizable framework of collective action in market for-

mation. Our framework assesses the presence and type of

collective action problems that hinder market formation

and identifies potential solutions tied to those collective

action problems.

KEYWORDS

collective action, collective action problems,

coordination, market formation, uncertainty

Received: 13 May 2015 Revised: 25 June 2017 Accepted: 30 June 2017 Published on: 20 October 2017

DOI: 10.1002/smj.2694

242 Copyright © 2017 John Wiley & Sons, Ltd. wileyonlinelibrary.com/journal/smj Strat Mgmt J. 2018;39:242–266.

1|INTRODUCTION

Scholars have long advanced theories regarding the creation of new markets (Aldrich & Fiol, 1994;

Rao, Morrill, & Zald, 2000) and sought to empirically identify the mechanisms and processes asso-

ciated with market origins and trajectories (Hiatt, Sine, & Tolbert, 2009; Lounsbury, Ventresca, &

Hirsch, 2003; Ozcan & Santos, 2015; Sine & Lee, 2009). Much of this work is based on the premise

that collective action is central to market formation, and that such efforts often resemble social

movements (G. F. Davis & McAdam, 2000; Fligstein, 2001; Rao et al., 2000). Studies emphasize

the collective nature of market elements such as the promotion of new cognitive frames (Benner &

Tripsas, 2012; Gurses & Ozcan, 2015), the solidification of identities and categories (Lee, Hiatt, &

Lounsbury, 2017; Kennedy, 2008; Navis & Glynn, 2010), the use of mobilization structures (Hiatt

et al., 2009; Weber, Heinze, & DeSoucey, 2008), the creation of supportive regulation (Lee, 2009;

Schneiberg & Bartley, 2001), and the achievement of legitimacy (Pacheco, York, & Hargrave,

2014; Sine, Haveman, & Tolbert, 2005). This work indicates that market formation often requires

the creation of a shared market infrastructure—material and sociocognitive elements supporting the

functioning of a stable market (Van de Ven, 1993)—that benefits market actors (albeit differen-

tially). Achieving this market infrastructure generally requires efforts that supersede those possible

by any single actor (Ozcan & Santos, 2015). That is, collective action across distinct actors is often

necessary to construct new markets and to redirect resources from existing uses in established mar-

kets (Rao et al., 2000; Van de Ven & Garud, 1993). We conceptualize collective action situations as

those in which a group of actors have an interest in the construction of a collective good (in the case of

new markets, market infrastructure), which cannot easily or fully be withheld from others (Marwell &

Oliver, 1993, p. 4). Collective action is then any activity aimed at the provision of this collective good.

This notion of collective action is illustrated by the key challenges that actors faced in the early com-

mercialization of radio broadcasting, which centered on integrating novel technological components for

achieving, transmitting, and receiving radio signals (Leblebici, Salancik, Copay, & King, 1991). Market

actors viewed these components as private property, protected by patents. However, because the devel-

opment, production, and use of these technologies were interdependent, creating actual value was con-

tingent on others’contributions and willingness to cooperate.

Yet, while collective action is critical, it is often difficult to achieve because actors may not per-

ceive their own and others’contributions as making a difference (Marwell & Oliver, 1993), may

have conflicting goals (Simcoe, 2012), may be unfamiliar with or untrusting of one another

(J. P. Davis, 2016), and/or may strategically withhold making contributions because they realize that

others may provide those instead (Olson, 1965).

While scholars recognize that collective action is central in market formation and takes a wide

range of forms, the extant literature faces two limitations. First, there are no clear boundary conditions

for when, what kind of, and to what extent collective action is important. Second, much of the litera-

ture assumes a shared rationale for collective action. For example, while not explicitly focused on mar-

ket creation, DiMaggio (1988) stated, “New institutions arise when organized actors with sufficient

resources see in them an opportunity to realize interests that they value highly”(p. 14, emphasis

added). Such language implies that actors have shared interests, possess adequate resources, and are

already organized. In other words, extant literature assumes that collective action comes about natu-

rally because different actors all want the market to emerge. But this may not be the case. Resource-

constrained actors, for instance, may not understand what other actors will contribute to building the

market. Further, different actors may hold contrasting views and expectations regarding the market

and how they will participate in it. This tends to positively bias researchers toward ex-post

LEE ET AL.243