Digital trading networks and competitive advantage in a buyer-seller network

Purpose - Firms embedded in networks of relations are theorized through Gnyawali and Madhavan’s (2001) (G&M) structural embeddedness model to gain competitive advantage from topological characteristics. Empirical studies to support their theory have never been executed in full. Our study provided a full empirical test of their model in a digital trading network to achieve a higher degree of certainty that those network structural characteristics can have a major impact on the degree to which certain firms lead to competitiveness in a digital trading network environment. Design/methodology/approach - To examine how firms respond in competitive situations, we chose the hyper-active digital trading network, eBay as our empirical context. We used eBay auction data to analyze how the network characteristics of eBay resellers impact their competitive behaviors. Findings - Our study found strong support for the G&M model of competitiveness. We offer explanations for where support was not as strong as the Gynawali and Madavan theory proposes. Research limitations/implications - Our research is limited by our chosen context and findings in support of part of G&M model. Future studies in other digital contexts are needed to enhance the modeling of network topologies and further study the impacts of network density and structural autonomy on competitive action. Practical implications - Our study suggests that managers proceed cautiously in forming partnerships, weighing circumstances where the firm can find itself with increased information power and avoiding, to the greatest extent possible, situations where the playing field is roughly equal. Social implications - Theory-making in this domain has begun as well as initial empirical testing. Much more needs to be accomplished, though, before embeddedness modeling can be thought of as being well established. Originality/value - The G& M Model of competitiveness is an SNA explanation of why some competitive units succeed and others do not. Our study is the first, full blown empirical analysis of the theory.