Bilateral collaboration and emergent networks

In this paper we model the formation of innovation networks as they emerge from bilateral actions. In contrast to much of the literature, here firms only consider knowledge production, and not network issues when deciding on partners. Thus we focus attention on the effects of the knowledge and information regime on network formation. The effectiveness of a bilateral collaboration is determined by cognitive, relational and structural embeddedness. Innovation results from the recombination of knowledge held by the partners to the collaboration, and its success is determined in part by the extent to which firms’ knowledge complement each other. Previous collaborations (relational embeddedness) increase the probability of a successful col- laboration; as does information gained from common third parties (structural embed- dedness). Repeated alliance formation creates a network. Two features are central to the innovation process: how firms pool their knowledge resources; and how firms derive information about potential partners. When innovation is decomposable into separate sub-tasks, networks tend to be dense; when structural embeddedness is im- portant, networks become cliquish. For some regions in this parameter space, small worlds emerge.