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Networks of Collaboration in Oligopoly

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  • Sanjeev Goyal

    ()
    (Erasmus University Rotterdam)

  • Sumit Joshi

    ()
    (George Washington University)

Abstract

In an oligopoly, prior to competing in the market, firms have an opportunity to form pair-wisecollaborative links with other firms. These pair-wise links involve a commitment of resources andlead to lower costs of production of the collaborating firms. The collection of pair-wise linksdefines 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 stablenetworks are often asymmetric, with some firms having a large number of links while others havefew links or no links at all. We characterize such asymmetric networks; the dominant grouparchitecture, stars, and inter-linked stars are found to be stable. In asymmetric networks, thefirms with many links have lower costs of production as compared to firms with few links. Thuscollaboration links can have a major influence on the functioning of the market.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 00-092/1.

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Date of creation: 10 Nov 2000
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Handle: RePEc:dgr:uvatin:20000092

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  1. Leahy, Dermot & Neary, J Peter, 1997. "Public Policy towards R&D in Oligopolistic Industries," American Economic Review, American Economic Association, vol. 87(4), pages 642-62, September.
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  7. Sumit Joshi & Sanjeev Goyal, 1999. "Collaboration and Competition in Networks," Working papers 64, Centre for Development Economics, Delhi School of Economics.
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  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. Sang-Seung Yi, 1998. "Endogenous Formation of Joint Ventures with Efficiency Gains," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 610-631, Autumn.
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