Stable Production Networks
28 May 2020-International Game Theory Review (World Scientific Publishing Company)-Vol. 22, Iss: 02, pp 2040006
TL;DR: One of the key features which promote growth of industrial clusters is collaboration among firms within such clusters, which leads to the formation of networks.
Abstract: One of the key features which promote growth of industrial clusters is collaboration among firms within such clusters. Collaboration among firms leads to the formation of networks. Stability of the...
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TL;DR: In this article, the authors study the stability and efficiency of social and economic networks when self-interested individuals can form or sever links, and show that there does not always exist a stable network that is efficient.
2,660 citations
TL;DR: In this article, the authors study the architecture of strategically stable networks and show that in a setting where firms are ex-ante identical, the asymmetric networks are often asymmetric, with some firms having a large number of links while others having few links or no links at all.
418 citations
TL;DR: This work considers a setting where every pair of players that undertake a transaction creates a unit surplus, and shows that, in the absence of capacity constraints on links, it leads to the emergence of a star network where a single agent acts as an intermediary for all transactions and enjoys significantly higher payoffs.
316 citations
TL;DR: In this article, the formulation of associations of firms in an oligopoly with linear demand is analyzed as a two-stage non-cooperative game, in which firms form associations in order to decrease their costs, and in the second stage they compete on the market.
Abstract: The formulation of associations of firms in an oligopoly with linear demand is analyzed as a two-stage noncooperative game. In the first stage, firms form associations in order to decrease their costs, and in the second stage they compete on the market. Examples of associations include R&D joint ventures and groups of firms adopting common standards. In equilibrium, the associations formed exhibit two general features: they are asymmetric and inefficient.
285 citations
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TL;DR: In this paper, a simple model of strategic networks was developed to capture two distinctive features of inter-firm collaboration activity: bilateral agreements and non-exclusive relationships, and the authors examined the incentives of firms to form collaborative links and the architecture of strategically stable networks.
Abstract: textMany markets are characterized by a high level of inter-firm collaboration in R&D activity. This paper develops a simple model of strategic networks which captures two distinctive features of such collaboration activity: bilateral agreements and non-exclusive relationships. We study the effects of collaborations on individual R&D effort, cost reduction, and market performance. We then examine the incentives of firms to form collaborative links and the architecture of strategically stable networks. Our analysis highlights the interaction between market competition and R&D network structure. We find that if firms are Cournot competitors then individual R&D effort is declining in the level of collaborative activity. However, cost reduction and social welfare are maximized under an intermediate level of collaboration. In some cases, firms can gain market power, and even induce exit of rival firms, by forming suitable collaboration agreements. Moreover, under certain circumstances, such asymmetric collaboration networks are also strategically stable. By contrast, if firms operate in independent markets then individual R&D effort is increasing in the level of collaborative activity. Cost reduction and social welfare are maximized under the complete network, which is also strategically stable.
275 citations