Cluster games: A novel, game theory-based approach to better understand incentives and stability in clusters

Countries all over the world look for ways to increase their competitiveness. The contribution of cooperating companies in the form of clusters is rather substantial and therefore, for example, the European Union and its member states have long been supporting these cooperative efforts. This support may take the form of a more entrepreneur- friendly legal environment, initiate cooperation, but it may also mean non-returnable financial contribution. This paper does not want to discuss the optimal channels to support clusters, and in particular it does not want to study the ways financial contributions are distributed among clusters. Rather, the contribution is an entirely novel way to look at the forces that keep some clusters on track while destruct others. Longstanding cooperation between companies forms a special complex process hierarchy in clusters. The main businesses of the cluster is driven by the actors’ interests in staying competitive, improving competitiveness and obtaining high profits both as a cluster, but especially as an individual company. Cooperation and the actors’ selfish interests should be kept in balance or else the success of the cluster is in jeopardy and its actors can lose both joint and individual profits. Organic relationships and cooperation among companies or a favourable business environment is, by no means a guarantee for a working and successful cluster. Clusters operating at industrial concentration points, having a critical mass, supporting environment, and a successful cluster manager may nevertheless lack success. On the other hand other clusters operating in suboptimal circumstances in theory, flourish and produce a high extra profit in practice. This puzzle cries for new models, new approaches for a better understanding of the opportunities and decisions that drive the clusters and their actors. This paper introduces an entirely novel way to study clusters by looking at the selfish, profit-seeking interests of the entrepreneurs, the actors of clusters. The approach, using game theory provides an exact, mathematical framework to study the conflict between the fruitful cooperation represented by the cluster and the selfish ways of the actors to follow their own – possibly short term – interests. The game theoretic approach makes it possible to identify not only good or bad clusters, provide recipes for solutions in some of the bad clusters, but also to define golden rules that do not only facilitate the evaluation of existing clusters, but help future cluster managers to create better, more stable clusters.