Stable and Efficient Electronic Business Networks: Key Players and the Dilemma of Peripheral Firms

Kai Suelzle

No 05-21, Working Papers from NET Institute

Abstract: This paper studies a spatial model of electronic business network formation where firms build links based on a cost-benefit analysis. Benefits result from directly and indirectly connected firms in terms of knowledge flows, which are heterogeneous: a "key-player" (e.g. a firm providing an exchange platform in a business-to-business network) provides a higher level of knowledge flows than "peripheral" firms (e.g. tier 3 suppliers in a vertically differentiated industry). For intermediate cost values of link formation, stable and efficient network structures comprise only a subset of the total set of firms, excluding peripheral firms which are most distantly located to the key player. When link formation implies a certain degree of network congestion, the stable and efficient network size is smaller than in a model with bilateral decisions upon link formation between two firms.

Keywords: Network Formation; Business-to-Business; Spatial Model (search for similar items in EconPapers)
JEL-codes: C70 D85 L22 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2005-10, Revised 2005-10
New Economics Papers: this item is included in nep-bec, nep-mic, nep-net and nep-soc
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Working Paper: Stable and Efficient Electronic Business Networks: Key Players and the Dilemma of Peripheral Firms (2005)
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