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Networks of collaboration in oligopoly

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  • Goyal, Sanjeev
  • Joshi, Sumit

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.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 43 (2003)
Issue (Month): 1 (April)
Pages: 57-85

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Handle: RePEc:eee:gamebe:v:43:y:2003:i:1:p:57-85

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Web page: http://www.elsevier.com/locate/inca/622836

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  1. Dutta, B. & Nouweland, C.G.A.M. van den & Tijs, S.H., 2003. "Link formation in cooperative situations," Open Access publications from Tilburg University urn:nbn:nl:ui:12-121826, Tilburg University.
  2. d'ASPREMONT, Claude & JACQUEMIN, Alexis, . "Cooperative and noncooperative R&D in duopoly with spillovers," CORE Discussion Papers RP -823, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  7. Roger B. Myerson, 1976. "Graphs and Cooperation in Games," Discussion Papers 246, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Sanjeev Goyal & Sumit Joshi, 2006. "Bilateralism And Free Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(3), pages 749-778, 08.
  9. Bloch, Francis, 1996. "Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division," Games and Economic Behavior, Elsevier, vol. 14(1), pages 90-123, May.
  10. Leahy, Dermot & Neary, J Peter, 1995. "Public Policy Towards R&D in Oligopolistic Industries," CEPR Discussion Papers 1243, C.E.P.R. Discussion Papers.
  11. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August.
  12. Suzumura, Kotaro, 1992. "Cooperative and Noncooperative R&D in an Oligopoly with Spillovers," American Economic Review, American Economic Association, vol. 82(5), pages 1307-20, December.
  13. Sumit Joshi & Sanjeev Goyal, 1999. "Collaboration and Competition in Networks," Working papers 64, Centre for Development Economics, Delhi School of Economics.
  14. Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, vol. 82(5), pages 1293-306, December.
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