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Stable and Efficient Electronic Business Networks: Key Players and the Dilemma of Peripheral Firms

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  • Kai Sülzle

Abstract

This paper studies a spatial model of electronic business network formation where firms build links based on a cost-benefit analysis. Benefits result from directly and indirectly connected firms in terms of knowledge flows, which are heterogeneous: a “key-player”(e.g. a firm providing an exchange platform in a business-to-business network) provides a higher level of knowledge flows than “peripheral” firms (e.g. tier 3 suppliers in a vertically differentiated industry). For intermediate cost values of link formation, stable and efficient network structures comprise only a subset of the total set of firms, excluding peripheral firms which are most distantly located to the key player. When link formation implies a certain degree of network congestion, the stable and efficient network size is smaller than in a model with bilateral decisions upon link formation between two firms.

Suggested Citation

  • Kai Sülzle, 2005. "Stable and Efficient Electronic Business Networks: Key Players and the Dilemma of Peripheral Firms," ifo Working Paper Series 22, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
  • Handle: RePEc:ces:ifowps:_22
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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