We introduce and investigate a framework whereby each firm may be organized either as a “small” unit, systematically relying on cooperation with other units, or as a “large,” stand-alone conglomerate. The framework is used to obtain some qualitative insights into the relative advantages of the two organizational modes. In general, a relatively ease with which the firms can combine productive ideas between them, to create production opportunities, and-or a relatively slow arrival of productive ideas favor the cluster over the conglomerate.