Inter-firm networks : economic and sociological perspectives

Abstract

Inter-firm collaborations have recently been recognized as a valuable mode for the organization of economic activity, next to markets and hierarchies. This recognition is supported by empirical evidence that strategic alliances between firms facilitate the generation and dissemination of information. However, many existing studies on the topic have failed to address the fact that inter-firm partnerships are embedded in a larger network of partnerships and that the structure of this network has important consequences on the desired outcome. What do inter-firm networks look like? Can we explain their structural properties? Moreover, do the structures of these networks support the potential benefits from inter-firm collaboration? This dissertation puts forward answers relating to these questions and complements existing theoretical and empirical studies in the social and economic network literature. In Chapters 2-4 of the dissertation, we extend on the economic network literature and examine networks of R&D partnerships between firms from the manufacturing industries. From the viewpoint of economic theory, these networks are a means for the generation and dissemination of technical know-how. A so far unexplored question is, however, to what extent economic theory can predict the structures and dynamics of these networks? Moreover, in how far do the structures of the real-world networks deviate from the welfare-optimal structure? These two questions guide the topics in the three chapters. Our descriptive analysis in Chapter 2 shows that the existing networks of R&D partnerships are extremely sparse, but that there are some companies that form a considerable number of partnerships every year. Chapter 3 presents an econometric test of existing economic theories to explain this phenomenon. The results of our test suggest that the heterogeneity is due to scale effects in the formation of R&D partnerships. Chapter 4 addresses the question concerning the social desirability of the observed networks. The central result of our theoretical analysis is that highly concentrated alliance networks are effcient for a wide range of industries. Moreover, the real-world networks might even exhibit too little concentration in their structure. In Chapter 5, we investigate inter-firm networks from a sociological perspective. Here, we consider that, apart from their collaborative partnerships, the firms in a market are also connected through other types of social relations, such as personal ties between their personnel. In the chapter, we examine the role of these ties for the formation and the effects of formal inter-firm partnerships. Two questions are at the heart of our analysis: does the network of personal ties determine which firms collaborate with each other? And if so, does the personal network facilitate the formation of welfare-improving inter-firm partnerships? The chapter presents an empirical enquiry into these questions, where we focus on the specific context of the personal ties of law firms operating in the market for legal services in international mergers and acquisitions. Our ambition is to investigate whether there is a tension between the effects of embeddedness on the profitability of a law firm and the quality of its counseling services. Our findings support such an ambiguous effect.