Collaboration keeps financial markets strong

Competition can, paradoxically, mean collaboration, as individuals working in global syndicated financial markets take a relational approach to competition, academics from Cass Business School have found.

Rather than engaging in price wars and retaliation and undercutting their competitors to win at all costs, firms in a direct, transactional relationship will incorporate collaboration and reciprocity, taking steps to support the long-term health of the overall market.

The study, led by Professor Paula Jarzabkowski, Professor of Strategic Management at Cass and Dr Rebecca Bednarek of Birkbeck, University of London, is titled ‘Toward a social practice theory of relational competing’ and was published in the Strategic Management Journal.

Professor Paula Jarzabkowski

To produce the research, academics examined data from 25 reinsurance and brokerage firms in the reinsurance industry to explore everyday practice of reinsurance underwriting managers as they priced, negotiated and allocated their firms’ capital to deals.

Reinsurance is a global syndicated financial market that insures insurance companies against large-scale losses, which sees multiple competitors take shares in a deal or a product at the same price.

Professor Jarzabkowski said: “Syndication does not mean a lack of competition. Market players remain highly competitive in wanting a share of the best deals. However, they are compelled to act in a relational manner to ensure buoyant pricing, maintain longstanding relationships with clients and to contribute positively to the overall health of the market. Ultimately, this behaviour may ensure the survival of competitors.”