The Liability of Collective Action: Growth and Change Among Early American Telephone Companies

The advantages of collective action by organizations are discussed often, but no attention has been paid to the possiblilty that engaging in collective action can make organizations less viable. In this paper, I explain that a liability of collective action is suffered by members of poorly-coordinated organizational communities. This might be merely a transitory problem, since organizations could change in order to increase community cohesion. However, organzational inertia makes such change hazardous, and so retards attempts to rationalize community structure. These ideas are used to explain why early independent (non-Bell) teleohone companies, which depended on a collective strategy to provide telephone service, stopped growing after an early heyday. Models of organizational growth, and of the effects of organizational change on failure, are estimated on a sample of companies from Pennsylvania. The results suggest that poor coordination of the independent movement was a major reason for its stagnation, and that attempts to resolve the problem increased organizational failure rates. Also, evidence is found that diffuse competition from the Bell System slowed the growth of independent telephone companies.