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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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  • Goyal, Sanjeev & Joshi, Sumit, 2003. "Networks of collaboration in oligopoly," Games and Economic Behavior, Elsevier, vol. 43(1), pages 57-85, April.
  • Handle: RePEc:eee:gamebe:v:43:y:2003:i:1:p:57-85
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    More about this item

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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