Institutions, Intergroup Competition, and the Evolution of Hotel Populations Around Niagara Falls

Abstract

Earlier versions of this paper benefited from the comments of Joel Baum, Margaret Brindle, Mark Fichman, John Freeman, Paul Goodman, Amie Yael Inman, David Loree, Victor Nee, Jerry Salancik, and Tal Simons, as well as Christine Oliver, Linda Johanson, and the anonymous ASO reviewers. Earlier versions of the paper were presented at Cornell University and the University of Toronto. This paper examines institution building and the problems of collective action that must be overcome so that institutions can regulate the self-interested activity of organizations and facilitate the production or protection of resources that collectively benefit organizations. We show that the presence of competing groups of organizations is key to institution building because it may allow cooperating organizations to gain relative competitive advantage over other organizations and because the presence of salient rivals facilitates collective action. We use the history of tourism institutions at Niagara Falls to illuminate the collective action problems, and their solutions, associated with building institutions. We propose that (1) institution building in this context was the result of collective action among competitors to solve a common problem, (2) rivalry and competition between hotels on either side of the falls enhanced collective action among locally competing hotels, and (3) the regulation provided by the institutions lowered the failure rates and increased the founding rates of hotels on both sides of the falls. We examined these propositions first through historical analysis to show the motivation and process of building institutions and then through analysis of hotel failure and founding rates to show the presence of interpopulation competition and the influence over time of the institutions on organizational populations. Our analysis of failure and founding rates indicates that Niagara Falls hotels did benefit from the institutions they helped create and that there were two competing groups of organizations, but, surprisingly, institutions helped all Niagara Falls hotels, regardless of which group created them.'