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Networks of Collaboration in Oligopoly

Author

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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.

Suggested Citation

  • Sanjeev Goyal & Sumit Joshi, 2000. "Networks of Collaboration in Oligopoly," Tinbergen Institute Discussion Papers 00-092/1, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20000092
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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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