Natural concentration in industrial research collaboration

Empirical work shows that networks of research and development alliances are asymmetric, with a small number of firms involved in the majority of partnerships. This article investigates the welfare‐relevant effects of such concentrated networks in a model of network formation in an oligopolistic market. We find that concentration is a typical characteristic of a socially efficient network when the costs of collaborative activity are significant. Moreover, expanding on prior work relating to strategically stable interfirm networks, we compare the stable and the efficient structures. Our findings suggest that real‐world networks might even exhibit too little concentration.