Stable Production Networks

Manish Sarkhel and Nagarajan Krishnamurthy ()
Additional contact information
Manish Sarkhel: Operations Management & Quantitative Techniques, Indian Institute of Management Indore, Rau-Pithampur Road, Indore 453556, Madhya Pradesh, India
Nagarajan Krishnamurthy: Operations Management & Quantitative Techniques, Indian Institute of Management Indore, Rau-Pithampur Road, Indore 453556, Madhya Pradesh, India

International Game Theory Review (IGTR), 2020, vol. 22, issue 02, 1-23

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 these networks is vital to the sustainability of the particular firms. In this paper, we model a supply chain network where a set of downstream firms (players) source inputs from upstream firms (players) who manufacture goods, add value to the products and resell them. The upstream firms produce identical goods and compete on quantities to sell these goods to the downstream firms. The upstream firms procure goods from the downstream firms and sell them. Additionally, upstream firms network among themselves so as to reduce their costs. We model this setting as a two-stage n-player strategic network formation game. Firms decide their links before competing on quantities in the second stage of the game. Using the defined model, we derive equilibrium quantities and profits as a function of the network structure and number of firms. Following which we analyze the conditions under which different stable network emerge. Our analysis brings forth several interesting insights such as higher connections among downstream players lead to increased profits for upstream manufacturers. From the network stability perspective, we obtain the conditions under which regular, star, etc. network structures are pairwise and bilaterally stable. Furthermore, we also find the conditions under which core–periphery network structures emerge and are stable.

Keywords: Network stability; pairwise stability; equilibrium; sustainability; interfirm collaboration; multi-tier supply chain (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S021919892040006X
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:igtrxx:v:22:y:2020:i:02:n:s021919892040006x

Ordering information: This journal article can be ordered from

DOI: 10.1142/S021919892040006X

Access Statistics for this article

International Game Theory Review (IGTR) is currently edited by David W K Yeung

More articles in International Game Theory Review (IGTR) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().