Collaboration and Competition in Networks

In a Cournot oligopoly, prior to choosing quantity, each firm has an opportunity to form pair-wise collaborative links with other firms. These pair-wise links lower costs of production of the firms which form a link and, if there are knowledge spillovers, also lower costs of other firms which are connected to them. The collection of pair-wise links defines a collaboration network. We characterize stable networks and compare them with efficient networks. We find that the complete network is stable, irrespective of the assumptions on spillovers across collaboration links. This is in contrast to some recent work on group formation in Cournot oligopoly, see e.g., Bloch (1995). Our finding is also interesting from a welfare point of view since, in such settings, the complete network is efficient from a social point of view.