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on Network Economics |
| By: | Frank H. Page, Jr. (Department of Finance, University of Alabama); Myrna H. Wooders (Department of Economics, Vanderbilt University) |
| Abstract: | Given the preferences of players and the rules governing network formation, what networks are likely to emerge and persist? And how do individuals and coalitions evaluate possible consequences of their actions in forming networks? To address these questions we introduce a model of network formation whose primitives consist of a feasible set of networks, player preferences, the rules of network formation, and a dominance relation on feasible networks. The rules of network formation may range from noncooperative, where players may only act unilaterally, to cooperative, where coalitions of players may act in concert. The dominance relation over feasible networks incorporates not only player preferences and the rules of network formation but also assumptions concerning the degree of farsightedness of players. A specification of the primitives induces an abstract game consisting of (i) a feasible set of networks, and (ii) a path dominance relation defined on the feasible set of networks. Using this induced game we characterize sets of network outcomes that are likely to emerge and persist. Finally, we apply our approach and results to characterization of equilibrium of well known models and their rules of network formation, such as those of Jackson and Wolinsky (1996) and Jackson and van den Nouweland (2005). |
| Keywords: | Basins of attraction, network formation games, stable sets, path dominance core, Nash networks |
| JEL: | C71 C72 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:van:wpaper:0614&r=net |
| By: | Filipe J. Sousa (Departamento de Gestão e Economia (DGE), Universidade da Madeira (UMa)); Luís M. de Castro (Faculdade de Economia, Universidade do Porto) |
| Abstract: | The Industrial Network Theory aims to describe and explain the business relationships and networks in which the focal firm is deeply embedded. One of its major propositions is that business relationships somehow influence, to different extents and over time, the focal firm’s survival. This pertains to the diverse and time-varying significance of business relationships for the focal firm. It has often been implicitly sustained that such significance is strongly related to the role played by business relationships and consequently the relationship outcomes accruing to the focal firm. The logic underlying the relationship significance proposition is outwardly oriented, somewhat overlooking the focal firm’s inside and in particular the conspicuous influence of business relationships on what the focal firm does competently both within and across its vertical boundaries. Arguably, the (predominantly ‘functional’) network-based arguments currently advanced represent a necessary but not sufficient condition for relationship significance. This conceptual paper tentatively suggests that there may be missing a supplementary (essentially internal) explanation supported by Competence-based Theories of the Firm. |
| Keywords: | Industrial Network Theory; relationship significance proposition |
| JEL: | M31 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:224&r=net |