Abstract

Few economists and theorists have thought about the choice of organizational form as a competitive weapon. Here, the author does so by examining the case of cluster tools, which are a type of equipment for manufacturing semiconductors. Within the US industry, competition for these devices is divided between a large vertically integrated firm, Applied Materials, and a large fringe of smaller, more specialized competitors. These latter have responded to the competition by creating a common set of technical interface standards, called the Modular Equipment Standards Committee standards. The author analyzes the trade-off between the benefits of systemic innovation and coordination versus those of external economies of scope and modular innovation. Although standards have so far kept the competitive fringe in the ballgame, modularity in the industry may ultimately take a different form, as some of the larger firms adhering to the standards become broadly capable systems integrators that outsource manufacturing to specialized suppliers of subsystems.

Introduction

Industrial economists tend to think of competition as occurring between atomic units called firms. Theorists of organization tend to think about the choice among various kinds of organizational structures – what Langlois and Robertson (1995) call business institutions. But few have thought about the choice of business institution as a competitive weapon.

In this essay I examine, and attempt to learn from, a case in which choice of organizational form is in fact a major element of competition.