The Performance of Seaport Clusters - RePub - Erasmus Universiteit ...

Chapter 5 – Cluster Structure 43
effect of internal competition ‘Among the strongest empirical findings from our research is
the association between vigorous domestic 20 rivalry and the creation and persistence in an
industry’ (Porter, 1990, p. 117). Porter’s argument is that internal competition leads to
dynamism in the cluster:
The nature of economic competition is not ‘equilibrium’ but a perpetual state of
change. Improvement and innovation in an industry are never ending processes
(…). Today’s advantages are soon superseded or nullified. At the core of
explaining national advantage in an industry must be the role of the home nation
in stimulation competitive improvement and innovation (Porter, 1990, p. 70).
Porter bases this conclusion on a variety of case studies, but does not provide quantitative
empirical results. He focuses on the effects of internal competition on innovation. We
develop three arguments for the positive effects of internal competition on cluster
performance, one of which is Porter’s ‘vibrant environment argument’.
The first argument for the positive effect of internal competition is that internal competition
lowers ‘switching costs’ for customers. Internal competition allows firms to shift to an
alternative supplier in the same cluster. In general, these switching costs are lower than
switching costs to a supplier outside the cluster, because of higher transaction costs. The
importance of switching costs varies between industries. Relatively high switching costs give
firms in the cluster the opportunity to appropriate ‘economic rents’, by charging higher
prices. This threat by itself reduces the attractiveness of a cluster for potential customers.
Second, internal competition fosters specialization (see Baptista, 2000 p. 516). Internal
competition is competition on a perfect level playing field (or to put it differently: cost curves
are similar). Competitors face the same regulation, have the same labor market conditions,
the same trade costs and the same supplier base. In such a competitive environment
specialization of products and services is more likely to develop than when competitors
operate in a different environment, because specialization reduces competition and
20 Porter generally speaks about domestic rivalry and the home nation because he does not pay
attention to the issue of delimiting the relevant cluster region. This is not problematic for small
countries but it is problematic for large countries. In such countries, competition between firms
in different locations cannot be termed internal competition.