How to manage networks? The role of network attributes and incentives in network governance

Abstract

The question of how a network is managed is a relevant issue in network governance as the implementation of a certain governance regime induces sunk costs, path dependencies, and lock-in effects. Therefore, I analyse in this conceptual study what form of network governance fits to which kind of networks. I examine from an economic perspective two important forms of network governance with regard to their incentive systems: 1 lead-firm governance 2 third-party governance. In (1) I identify rather strong incentives for the network manager to foster the network’s development, but also to exploit his or her discretionary freedom, whereas (2) implies somewhat weaker incentives to actively promote the network, but also to act opportunistically. As a result, the article discusses that the conditions in a cooperative, vertical network with stable relationships tend to favour a lead-firm network manager despite the large discretionary freedom that the network manager has. By contrast, horizontal networks that are characterised by flexible and more competitive relations seem to require a neutral, third-party network manager.