Competition through Institutional Form: the Case of Cluster Tool Standards

Richard Langlois
University of Connecticut

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     Last modified: May 6, 2004

Abstract
Industrial economists tend to think of competition as occurring between atomic units called “firms.” Theorists of organization tend to think about the choice among various kinds of organizational structures – what Langlois and Robertson (1995) call “business institutions.” But few have thought about the choice of business institution as a competitive weapon. (One exception was Schumpeter, who listed “new forms of industrial organization” as among the sources of the “fundamental impulse that sets and keeps the capitalist engine in motion” (Schumpeter 1942 [1976], p. 82).)

This essay will examine, and attempt to learn from, a case in which choice of organizational form is in fact a major element of competition. Cluster tools, a type of equipment for manufacturing semiconductors, are becoming increasingly important as manufacturers attempt to pack more and more circuits on a chip. Within the U. S. industry, competition for these devices is divided between a large vertically integrated firm, Applied Materials, that designs and builds largely internally according to its own specifications and a large fringe of smaller, more specialized competitors. These latter have responded to the competition from Applied by creating a common set of technical interface standards, called the Modular Equipment Standards Committee (MESC) standards.

The essay will update my earlier work on this industry (Langlois 2000), and will attempt think more systematically about (1) the problem of standard setting in the context of a large vertically integrated firm with a large competitive fringe and (2) the phenomenon of competition through institutions in general. I will also attempt to consider the role of Japanese and other competition in the industry.

References.
Langlois, Richard N. 2000. “Capabilities and Vertical Disintegration in Process Technology: The Case of Semiconductor Fabrication Equipment,” in Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy. London: Routledge, pp. 199-206.
Langlois, Richard N. and Paul L. Robertson. 1995. Firms, Markets, and Economic Change: A Dynamic Theory of Business Institutions. London: Routledge.
Schumpeter, Joseph A. 1942. Capitalism, Socialism, and Democracy. New York: Harper and Brothers. (Harper Colophon edition, 1976.)