Natural Concentration in Industrial Research Collaboration

Abstract

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 inter-firm networks, we compare the stable and the efficient structures. Our findings suggest that the real-world networks might even exhibit too little concentration.