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Networks of Collaboration in Oligopoly

Sanjeev Goyal and S. Joshi

No EI 9952-/A, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: In an oligopoly, prior to competing in the market, firms have an opportunity to form pair-wise collaborative links with other firms. These pair-wise links involve a commitment of resources and lead to lower costs of production of the collaborating firms. The collection of pair-wise links defines a collaboration network. We study the architecture of strategically stable networks. Our analysis reveals that in a setting where firms are ex-ante identical, strategically stable networks are often asymmetric, with some firms having a large number of links while others have few links or no links at all. We characterize such asymmetric networks; the dominant group architecture, stars, and inter-linked stars are found to be stable. In asymmetric networks, the firms with many links have lower costs of production as compared to firms with few links. Thus collaboration links can have a major influence on the functioning of the market.

Keywords: market competition; networks; oligopoly (search for similar items in EconPapers)
JEL-codes: C45 D43 L13 (search for similar items in EconPapers)
Date: 2000-11-10
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Journal Article: Networks of collaboration in oligopoly (2003) Downloads
Working Paper: Networks of Collaboration in Oligopoly (2000) Downloads
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