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lecture3 firm networkspdf

lecture3 firm networkspdf - Lecture III Firm Networks...

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Lecture III: Firm Networks Markus M. M¨obius April 4, 2002 1 Motivation Many industries upstream frms share downstream suppliers. OFten upstream frms encourage downstream suppliers to link up to other upstream competi- tors: For example, ±ord and GM spinned o² their vertically integrated sup- pliers in the 1990s specifcally to allow them to better sell their products to other car manuFacturers. Kranton and Minehart reFer to this phenomenon as economies of sharing . Two ingredients are necessary: demand uncertainty supplier and buyer specifc investments (interpret them as ’links’) Some examples are: Apparel industry in New York garment district (Uzzi, AJS, 1996). ’Job- bers’ sell to many manuFacturers: 35 percent to 3 or Fewer, 45 percent to 4-8 and 20 percent to 9 and more manuFacturers. For at least 3 clients. 1. Demand Uncertainty due to ±ashions in Better Dresses industry. ’Hot’ designs have surge in orders. 1 2. Jobbers learn about preFerences oF manuFacturers over time. DiF- fcult to substitute untrained frm. 1 Uzzi also runs a number of regressions to test whether links help for survival - he claims yes, but this could be selection; good Frms have more links. 1
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Lean Production in Japan and UK (Nishiguchi, 1994). Contractors have frst and second tier subcontractors. First tier contractors in elec- tronics have on average 3.36 regular customers. 2 1. Electronics industry is highly innovative and creates lots o± de- mand uncertainty.
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