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Networks of Collaboration in Oligopoly

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  • Sumit Joshi

    (George Washington University)

Abstract

In an oligopoly, prior to choosing quantities/prices, each firm has an opportunity to form pair-wise collaborative links with other firms. These pair-wise links lower costs of production of the firms which form a link. The collection of pair-wise links defines a collaboration network. We study stable and efficient networks under different types of market competition. We find that except under extreme competition, a la Bertrand, firms have an incentive to collaborate wit their competitors to lower costs of production. We find that two simple architectures, the complete network, where every firm has a collaboration link with every other firm, and the network with a dominant group, which contains a large number of completely connected firms and several isolated firms, are stable under different market conditions. We also observe that stable networks are often efficient from a social point of view.

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Bibliographic Info

Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0623.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:0623

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  1. 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.
  2. Ray, D. & Vohra, R., 1996. "A Theory of Endogenous Coalition Structure," Papers 68, Boston University - Industry Studies Programme.
  3. 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.
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  5. Jackson, Matthew O. & Wolinsky, Asher, 1996. "A Strategic Model of Social and Economic Networks," Journal of Economic Theory, Elsevier, vol. 71(1), pages 44-74, October.
  6. Sumit Joshi & Sanjeev Goyal, 1999. "Collaboration and Competition in Networks," Working papers 64, Centre for Development Economics, Delhi School of Economics.
  7. 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).
  8. 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.
  9. Ray, Debraj & Vohra, Rajiv, 1997. "Equilibrium Binding Agreements," Journal of Economic Theory, Elsevier, vol. 73(1), pages 30-78, March.
  10. Yi, Sang-Seung, 1997. "Stable Coalition Structures with Externalities," Games and Economic Behavior, Elsevier, vol. 20(2), pages 201-237, August.
  11. 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.
  12. Roger B. Myerson, 1976. "Graphs and Cooperation in Games," Discussion Papers 246, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. 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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