Investigating the Microstructure of Network Evolution: Alliance Formation in the Mobile Communications Industry

Abstract

T heories of network evolution frequently focus on "network endogeneity," which stresses predictable, path-dependent evolution rooted in previous network structure. However, theories of technological evolution and innovation remind us that networks may undergo significant change as technological discontinuities exert pressures on existing relationships and firms engage in exploratory search. How can we incorporate sources of change into our theories of network evolution instead of focusing so squarely on sources of inertia? By using recent advances in graph theory, we develop a more flexible theory of network evolution by examining two patterns of partner selection that have the potential to change networks: "shortcut" formation between relatively unconnected partner clusters, and the entry of new firms into the "main component" of incumbent partners. Our findings suggest an important contingency for the endogeneity perspective: structural homophily predicts shortcut formation but not alliance formation within clusters. Furthermore, we demonstrate that the pattern of alliance formation between incumbents and new entrants to the alliance network is driven by a combination of endogenous and exogenous mechanisms. New entrants attach to more prominent incumbents, but they are more likely to attach with an alliance deal that comprises multiple partners. We demonstrate these findings in an industry where systemic technology encourages cooperation and where network entry is prevalent-the mobile communications industry from 1993-2002.

Toward a Theory of Extended Contact: The Incentives and Opportunities for Bridging Across Network Communities

“…In particular, we advance the ongoing stream of research on the endogenous evolution of networks that focuses on how preexisting network structures can shape the formation of new structures in a dynamic fashion (Gulati and Gargiulo 1999;Rosenkopf and Padula 2008;Zaheer and Soda 2009). Our study offers a novel set of insights to this line of work by recognizing how the distinct proximate and global levels of network structure can independently determine the incentives and opportunities for structural action.…”

“…Specifically, scholars have emphasized the role of structural homophily, whereby partners with high centrality can gravitate to each other in bridging relationships (Rosenkopf and Padula 2008), and to insurgent partnering by peripheral firms and control partnering by dominant firms (Baum et al 2003). This study contributes to and extends this work by suggesting that -in addition to the sustainability and change in the market"s prominence order -the time-variant incentives of value creation and value distribution from bridging, as well as the opportunity structure for bridging for a given firm can critically shape the formation of bridging ties by that firm.…”

“…Understanding the role of social structure as an enabler and constraint of micro-level action occupies an important place in sociology and organization theory (e.g., Burt 1982;Coleman 1990;Rosenkopf and Padula 2008;Zaheer and Soda 2009). This placement is explained by the fact that the focus on the enabling and constraining role of social structure intermediates the atomistic theories of action, where actors" actions are presumed to be either exogenous or inherent to their dispositional characteristics, and the theories that view actors" behaviors as universally explained by the normative pressures of the social context (Granovetter 1985).…”

“…In addition to determining the outcomes of individual and corporate actors (e.g., McEvily et al 2011), they have critical implications for the structure and performance of global systems. Without bridging ties, social structures emerge as fragmented and incoherent (Granovetter 1983;Rosenkopf and Padula 2008). In contrast, bridges interlink distinct communities of actors and enable any two actors to reach one another quickly, thereby serving as key inputs into the structure of small worlds that characterizes many social settings (Baum et al 2003;Davis et al 2003;Uzzi and Spiro 2005).…”

Learning horizon and optimal alliance formation

“…The opportunity for non-redundancy appears to be a weak requirement, first, given the hundreds and often thousands of firms populating many industries (e.g., United States Census Bureau 2012). Second, empirical research shows that non-redundancy is prevalent even in networks with high degrees of local redundancy, due to the propensity of some firms to form 'bridging' ties across otherwise disconnected parts of an alliance network (e.g., Powell et al 2005;Rosenkopf and Padula 2008;Schilling and Phelps 2007;Sytch et al 2011). In this more general model, then, not all direct partners of the firm are required to have unique partners themselves: even if only one of a firm's direct partners has one unique partner itself, a distant learning horizon can exist and so the necessary conditions for Propositions 1 and 2 are replicated.…”