Dynamic evolution of economic networks under the influence of mergers and divestitures

Abstract

Mergers and divestitures are two major economic activities. In this article, an evolutionary model combined with mergers and divestitures is proposed from the perspective of complex network science. More specifically, the Axelrod model is introduced to present the identity of entities on the economic network, the Cobb–Douglas production function is used to calculate the power of each entity, and the probabilities of mergers and divestitures are determined by the Fermi function considering key economic indicators during the evolution. We find that mergers and divestitures have neither good nor bad characteristics by themselves, and that the key to the success of these activities is the ability and the development status of entities in the economic network. Identity dimension, learning ability, initial network size, and density usually play important roles in the progress under the influence of mergers and divestitures. Power, degree, age, identity distance, maximal ingredient, network size, and the frequency of mergers and divestitures likewise can give rise to very different processes in different economic environments. The presented results may have a high reference value when economic sectors develop specific merger and divestiture policies, and we also outline directions for future research that seem important and promising along the same lines.