Vertical cooperation in the construction industry: size does matter Derk Th. Welling is a junior researcher at the Groningen Research Institute of Purchasing (GRIP) in Groningen, The Netherlands and purchasing advisor with Ballast Nedam N.V., Utrecht, the Netherlands. Dirk-Jan F. Kamann is NEVI-professor at the University of Groningen, the Netherlands, and Scientific Director of the Groningen Research Institute of Purchasing (GRIP) Summary Construction firms do not seem to take advantage of their opportunities to make use of external resources through cooperation. This article shows how this can be explained from game theory. When the same individuals have to deal with each other in a series of projects, cooperation is more likely to occur than when they deal with a different individual in each project. This was supported in an experiment in a construction firm. It was also found that in particular in large construction companies, individuals rarely deal with the same individuals of supplier companies, unless this is part of an explicit policy to appoint account managers to deal with the mutual contacts between companies involved. ___________________________________________________________________________ Introduction This contribution focuses on the emergence of vertical cooperation and the influence of organisational size in the construction industry. Literature points at a lack of cooperation in construction supply chains. The iterated Prisoner’s Dilemma computer tournament (Axelrod, 1984) of game theory is used as theoretical framework to explain the situation. We formulated the following research questions: 1. Can a potentially cooperative strategy emerge in an environment, like the construction industry, which is predominantly non-cooperative? 2. What are the implications for construction firms in practice? We found that cooperation, based on reciprocity, can emerge under specific circumstances and assumptions. The so called shadow of the future – the possibility that individuals might meet again in a Prisoner’s Dilemma – in addition with assumptions about the individuals and the social setting are terms which have to be taken into account. The requisites as stated within the theoretical framework of Axelrod (1984) will be combined with existing empirical data (Geerink, 1998) and an experiment performed for this project (Welling et. al. 2001). This will lead us to the preliminary conclusion and some business implications. When cooperation is an appropriate strategy in the long run, the allocation of individuals in a project team is of critical importance. In addition, we will state that size has also influence on the probability that individuals in construction might meet each other again. Which would imply that size does matter, when aiming for vertical cooperation in construction. Construction industry According to Dubois and Gadde (2000, p. 207) the construction industry is “ahead of most other industries in terms of outsourcing”. Still, we find a widespread dissatisfaction with the amount of vertical cooperation in construction supply chains. Firms do not seem to take