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Networks of Collaboration in Oligopoly

  • Goyal, S.
  • Joshi, S.

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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Paper provided by Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute in its series Econometric Institute Research Papers with number EI 9952-/A.

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Date of creation: 10 Nov 2000
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Handle: RePEc:ems:eureir:6932
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  13. 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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