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

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The Performance of Seaport Clusters
therefore can lead to a higher profitability 21 . This argument can be related to the work of
Hotelling (1929) who argues that competition between services provided at different
locations is by nature ‘oligopolistic’ because of the importance of transport costs. The
location itself is a ‘source’ of specialization.
Differentiation and specialization enhance the performance of the cluster as a whole
because in a cluster with internal competition customers can purchase products and
services that match their specific demand.
Third, internal competition enhances cluster performance because it provides a firm with a
‘vibrant environment’ (see Porter, 1990). Porter argues that:
‘Pride drives managers and workers to be highly sensitive to other companies
(…). Domestic rivals fight not only for market share but for people, technical
breakthroughs and, more generally, ‘bragging rights’ (Porter, 1990, p. 119).
Porter claims that internal competition has a positive effect on the performance of firms
because domestic rivalry is highly visible and ‘in the air’ (see also Marshall, 1890). As a
consequence, it fosters innovation. Therefore, the presence of a vibrant environment adds to
the performance of a cluster 22 .
For these three reasons internal competition contributes to the performance of a cluster.
Internal competition is likely to arise as a result of market forces in most cases. Two special
conditions can prevent internal competition. First, a small market size relative to the minimal
efficient scale (MES) can prevent internal competition. Internal competition can only exist in
clusters with a large market size relative to the MES. Second, regulations can prevent
internal competition, for instance because the right to provide services is tendered to one
firm.
21 Porter (1990), stresses the effect of local competition on internationalization. This is explained
by the drive to create economies of scale, when the domestic market is not sufficiently large.
Expansion helps in this case to increase competitiveness locally.
22 Some scholars have argued that fierce internal competition leads to shared mental maps (see
Pouder and St. John, 1996). This is not a convincing argument. Shared mental maps can
perhaps result from dense local interaction, not from fierce internal competition. Instead,
competition generally leads to specialization and the development of distinctive capabilities.