Vertical Cooperation in the Construction Industry: Size Does Matter

SUMMARY The construction industry is characterized by opportunistic behavior and the lack of vertical cooperation. This article shows how game theory explains this phenomenon and helps to solve it. When the same individuals have to deal with each other in a series of projects, cooperation is more likely to occur than when they deal with a different individual in each project. Supported by an experiment with managers in a construction firm, it was found that particularly in large construction companies, individuals rarely deal with the same individuals at subcontractors. The business recommendation following from this is to adopt an explicit policy of appointing account managers both at the purchasing side of the contractor and the marketing side of the subcontractor to deal with the mutual contacts between the organizations involved.