Understanding the Processes underlying Inter-firm Collaboration: Mutual-Forbearance and the Principle of Congruity

This paper makes a theoretical innovation by integrating two key principles –mutual-forbearance and the principle of congruity – into one general process model. It examines the micro-mechanisms underlying the formation of a mutual-forbearance agreement and explicates the role of time and of individual actions. We further understanding of the process of cooperation building by drawing a parallel between early stages of the formation process of mutual-forbearance and cooperation, and argue that mutual-forbearance may, under certain conditions, lead to long-term cooperation or, if mismanaged, completely smother any chances of it. A prospective agreement may be put at risk when potential contributions are evaluated differently by each party and no action to mitigate the consequences is taken; even more so in a mutual-forbearance context when the parties can only observe their counterparts’ actions through the market. Our model takes into account the micro-mechanisms associated with the time between the actions of one entity/individual (e.g. the top manager) and the reaction of another entity/individual, the boundary conditions of the background to those actions, and the alternative actions available during this time. Propositions for further exploration and implications are drawn.