Friendships among Competitors in the Sydney Hotel Industry1

Friendships with competitors can improve the performance of organizations through the mechanisms of enhanced collaboration, mitigated competition, and better information exchange. Moreover, these benefits are best achieved when competing managers are embedded in a cohesive network of friendships (i.e., one with many friendships among competitors), since cohesion facilitates the verification of information culled from the network, eliminates the structural holes faced by customers, and facilitates the normative control of competitors. The first part of this analysis examines the performance implications of the friendship‐network structure within the Sydney hotel industry, with performance being the yield (i.e., revenue per available room) of a given hotel. This shows that friendships with competitors lead to dramatic improvements in hotel yields. Performance is further improved if a manager’s competitors are themselves friends, evidencing the benefit of cohesive friendship networks. The second part of the analysis examines the structure of friendship ties among hotel managers and shows that friendships are more likely between managers who are competitors.