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When Murat Sertel asked us whether we would be interested in organizing a special issue of the Review of Economic Design on the formation of networks and groups, we were happy to accept because of the growing research on this important topic. We were also pleasantly surprised at the response to our request for submissions to the special issue, receiving a much larger number of sub missions than we had anticipated. In the end we were able to put together two special issues of insightful papers on this topic. Given the growing interest in this topic, we also decided (with encouragement from Murat) to combine the special issues in the form of a book for wider dissemination. However, once we had decided to edit the book, it was natural to move beyond the special issue to include at least some of the papers that have been influential in the literature on the formation of networks. These papers were published in other journals, and we are very grateful to the authors as well as the journals for permission to include these papers in the book.
We use a laboratory experiment to explore dynamic network formation in a six-player game where link creation requires mutual consent. The analysis of network outcomes suggests that the process tends to converge to the pairwise-stable (PWS) equilibrium when it exists and not to converge at all when it does not. When multiple PWS equilibria exist, subjects tend to coordinate on the high-payoff one. The analysis at the single choice level indicates that the percentage of myopically rational behavior is generally high. Deviations are more prevalent when actions are reversible, when marginal payoff losses are smaller and when deviations involve excessive links that can be removed unilaterally later on. There is, however, some heterogeneity across subjects.
PURPOSE: The analysis of the literature shows that the attempts to conceptualize the strategic aspects of the network bring a significant impact on the development of research on organizational networks. This article aims to analyze the new trends in strategic management, and in particular on the possibility of exploring the network approach in strategic management, through the existing literature and the presentation of the new contributions of the following articles published in the current issue. METHODOLOGY: The article is descriptive in character; thus it is based on a literature review and its constructive critics. A narrative literature review was used to present the main assumptions and features of the network approach in strategic management, along with an indication of emerging trends and new directions. Also the identification of theoretical foundations for understanding the processes of strategic change in inter-organizational networks and the proposition of the way to understand network strategy were presented. FINDINGS: The research included in this issue shows that from a network perspective, business strategy plays an important role in guiding the development of individual relationships and networks. Exploring the network approach in strategic management allows one to adopt the category of network strategy, which can be described through the coexistence of cooperation and competition. IMPLICATIONS FOR THEORY AND PRACTICE: Considerations lead to the conclusion that the business strategy must be expressed in terms of potential changes in the network in which the company operates, taking into account its current and selected position in the network. Despite the fact that the current state of research on organizational networks in the theory of strategic management shows that this approach is already quite well established, on the basis of the analysis of research results concerning the conceptualization of strategic aspects of the network, the existing problems and limitations were identified. ORIGINALITY AND VALUE: The main problems related to the exploration of the network approach and the resulting consequences for the definition of the network strategy were indicated. Also, the combination of an organizational and economic approach with the logic of competitive advantage and relational annuity. The demonstration that the network perspective in strategic management allows for a more complete understanding of the strategic behavior of modern enterprises. Keywords: network, network strategy, network approach, strategic management Table of Contents Network approaches and strategic management: Exploration opportunities and new trends 7 Beata Barczak, Tomasz Kafel, Pierpaolo Magliocca Networks and network strategies: New theorization based upon a systematic literature review 37 Rossella Canestrino, Amir Forouharfar Direct and moderation effects on U.S. apparel manufacturers’ engagement in network ties 67 Nancy J. Miller, Carol Engel-Enright, David A. Brown Mapping of a science and technology policy network based on social network analysis 115 Esmaeel Kalantari, Gholamali Montazer, Sepehr Ghazinoory Synergetic effects of network interconnections in the conditions of virtual reality 149 Kateryna Kraus, Nataliia Kraus, Olena Shtepa Complexity, continuity, and strategic management of buyer–supplier relationships from a network perspective 189 Martin Pech, Drahoš Vaněček, Jaroslava Pražáková Interfirm network structure and firm resources: Towards a unifying concept 227 Jesse Karjalainen, Aku Valtakoski, Ilkka Kauranen
This book explores the creation of 'learning networks' and shedslight on how they function:- real versus virtual forms ofinteraction, collaboration versus competition in the learningprocess, and joint value creation versus individual valueappropriation in networks. Written by international experts in the field of globalstrategy. Contributions have been selected for their insights andinterdependence between organizational learning and networks. Looks at topics such as real versus virtual forms ofinteraction, collaboration versus competition in the learningprocess, and joint value creation versus individual valueappropriation in networks.
Zott and Amit explore the role of business models in creating value through networks. They review earlier, firm-centric views of value creation, including Porter’s value chain, the resource-based view, and the transaction costs approach. They point out that business models go well beyond classic views of network theory (e.g., topography and structure) and include notions of purpose, acceptance, fairness, coherence, and viability. Based on their earlier framework for e-business models, they explore the role of four major interlinked value drivers: efficiency, complementarities, lock-in, and novelty. They argue that the focal firm’s business model acts as both an engine for value-creation and an invaluable construct for understanding the firm’s role in relation to other business model participants in the networks in which it is embedded.
As our understanding of complex social, economic, and technological systems improves, it is increasingly apparent that a full account of a system's macroscopic level properties requires us to carefully explore the structure of local, pairwise interactions that take place at the microscopic level. Over the past two decades, networks have emerged as the de facto representation of such systems, leading to the genesis of the interdisciplinary field of network science. During this same period, we have witnessed an explosion of participation and consumption of social media, advertising, and e-commerce on the internet; an ecosystem that is the embodiment of and whose success is fundamentally coupled to the use and exploitation of complex networks. What are the processes and mechanisms responsible for shaping these networks? Do these processes posses any inherent fairness? How can these structures be exploited for the benefit of strategic actors? In this dissertation, I explore these questions and present analytical results couched in a theory of strategic decision making -- algorithmic game theory. First, research is presented on the pairwise inequality that is inherent to strategic models of network formation. The network formation games that we consider model the creation of communication links between rational, self-interested individuals. We use the inequality ratio, defined as the ratio between the highest and lowest costs incurred by individual players in a given outcome, to quantify pairwise inequality. Tight upper bounds for the inequality ratio are derived for pure Nash equilibrium outcomes of the network formation games, and the relationship between inequality and efficiency (outcomes that are globally optimal) is characterized. Next, a multi-level network formation game modeled on the sociological principle of networked social capital is introduced and analyzed. Motivated by the observation that networks found in nature are rarely isolated from one another, this research examines a scenario in which individuals form intra-group links to maximize group cohesion and inter-group links to maximize their group's standing relative to other groups. Our model formulation draws heavily from the empirical research of sociologist Ronald S. Burt and his theory of structural holes, and we derive constructive proofs of the existence of equilibrium outcomes. Departing from the topic of network formation games, I next present research on the strategic seeding of opinions in social networks. This work, which is best introduced in terms of a political election, involves candidates (players) each choosing subsets of voters (nodes in a social network) to seed opinions that are subsequently spread through the voters' social connections by a dynamic process. After the opinions have been allowed to diffuse for a predetermined amount of time, the voters' opinions are aggregated in an election. Voters cast their votes probabilistically, where the probability that they choose a particular candidate is proportional to that voter's opinion toward the candidate relative to their opinion toward the other candidates. Players -- each representing a single candidate -- strategically choose a set of seed nodes that will maximize the probability that their candidate will win the election. We establish the guaranteed existence of pure Nash equilibrium outcomes in the special case where the opinion dynamics are allowed sufficient time to converge to a consensus opinion. We prove that this guarantee does not carry over to cases where the dynamics are not given sufficient time to reach a consensus. We also derive bounds on the budget multiplier, which characterizes the extent that any initial inequality (in terms of players' respective seed budgets) is amplified by the opinion dynamic over the social network into greater inequality in players' utilities. Finally, we analyze the computational problem of finding a player's best response (pure) strategy, proving that it is NP-complete but approximable to within a (1 - 1/e) factor of optimal by a simple greedy algorithm. The concluding chapter of this dissertation presents my work on algorithm instance games, which are a class of games that I have identified as being characterized by having outcomes that are derived from strategy profiles algorithmically. Primarily a conceptual contribution, this research identifies a class of games that includes algorithmic mechanism design as a special case. Two variants of a simple game from this class that is based on the Set Cover optimization problem are presented and analyzed to demonstrate how algorithmic design decisions can influence strategic behavior.
This book explores goal-oriented action and describes the variety of options offered by strategic management in guiding public organisations. The book is based on the idea that planning is only one option in orienting the functioning of public organisations and applies resource-based and network studies to the public sector. Whilst most of the existing literature on strategic management relates to local government, this book examines developments within central governments and public agencies external to government hierarchies. The book also addresses the strategic distinction between politics and administration often neglected by existing research, and illustrates the connection between goal setting and actual performance of government organisations.
Imagine a world where everybody is calculative in building relationships. In this book I model such a scenario and ask how this behavior affects the structure of social networks. Applications include friendship networks, personal business networks, R&D collaborations, strategic alliances, and trade among countries. After discussing the formal modeling approach, I put a focus on two types of linking goals. One is the gain of access to information and support by having many other actors in close reach; the other one is the bargaining position that is attained by being a broker for others. It turns out that the interaction of two goals leads to non-trivial dynamics of the network structure. Moreover, it can be observed that a typical feature of friendship networks is destroyed by incentives for advantageous network positions. Finally, I turn to a focal problem in strategic network formation: there is a general conflict between stability, based on individual interest, and efficiency, based on collective welfare. I study the sources of inefficiency by analyzing the external effects of link formation.