ABSTRACT
This positive association between co-operation and competition does not hold for all firm sizes or types of co-operation. Promotion of co-operation between large dominant firms is likely to increase economies of scale (that are external to the firm but internal to the partnership/group) but runs the risk of dampening competition. The anti-competitive effects of co-operation between large firms can arise for two reasons. First, co-operation between large firms that individually operate above current levels of minimum efficient scale will raise entry barriers rather than lower them.22 Second, co-operation between firms that already control a significant proportion of the market is likely to increase the prospects for successful collusion in the product market. The possibility of price collusion is significantly less for networks of small firms that form a competitive fringe. Moreover, if SME networks are successful at encouraging entry and increasing the survival rate of SMEs then, ceteris paribus, firm numbers and the degree of competition will be increased. Accordingly, in order to preserve ‘the consistency of all measures which could enhance industrial efficiency’ (CEC 1994:1) it is important that the Commission’s objective of promoting of cooperation is aimed primarily, but not necessarily exclusively, at SMEs. This would require the active incorporation of the Integrated Programme into the EU’s latest proposals for industrial policy (CEC 1994a) and greater emphasis on external rather than traditional economies of scale. That is, instead of concentrating on the promotion of large firm economies of scale, industrial policy should be more concerned with promoting co-operative external economies of scale in the SME sector. As we have seen, the nature of cooperative external economies suggests a bottom-up approach to industrial policy that would limit the role of the EU to the promotion of best practice, rather than the direct enactment of policy.
