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Prescriptions for network strategy: Does evidence of network effects in cross-section support them?

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Author Info

  • Baum, Joel A.C.

    ()
    (University of Toronto)

  • Cowan, Robin

    ()
    (UNU-MERIT/MGSoG, Maastricht University, and BETA, Universite de Strassbourg)

  • Jonard, Nicolas

    ()
    (University of Luxembourg)

Abstract

Although intuitively appealing (and common), drawing network strategy implications from empirical evidence of network performance effects in pooled cross-section is not necessarily warranted. This is because network positions can influence both the mean and variance of firm performance. Strategic prescriptions are warranted if empirically observed network effects reflect increases in mean firm performance. If network effects reflect increases in firm performance variance, however, such prescriptions are warranted only if the increase in the odds of achieving high performance is sufficient to compensate for the concomitant increase in the odds of realizing poor performance. Our simulation study, designed to examine network performance effects in both pooled cross-section and within-firm over time across a wide range of conditions, counsels caution in drawing implications for network strategies. We discuss the implications of our findings for research on network effects, and more broadly for drawing strategic inferences from studies of firm performance in pooled cross-section.

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File URL: http://www.merit.unu.edu/publications/wppdf/2012/wp2012-044.pdf
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Bibliographic Info

Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 044.

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Date of creation: 2012
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Handle: RePEc:unm:unumer:2012044

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Related research

Keywords: network formation; strategic alliances; innovation; network strategy; interfirm networks;

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  1. Lori Rosenkopf & Paul Almeida, 2003. "Overcoming Local Search Through Alliances and Mobility," Management Science, INFORMS, vol. 49(6), pages 751-766, June.
  2. Gilsing, Victor & Nooteboom, Bart & Vanhaverbeke, Wim & Duysters, Geert & van den Oord, Ad, 2008. "Network embeddedness and the exploration of novel technologies: Technological distance, betweenness centrality and density," Research Policy, Elsevier, vol. 37(10), pages 1717-1731, December.
  3. Joel BAUM & Robin COWAN & Nicolas JONARD, 2009. "Network-independent partner selection and the evolution of innovation networks," Working Papers of BETA 2009-23, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
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