Positional Advantage in Networks

Abstract

Recent research in strategy has called attention to the fact that particular positions in inter-firm networks may serve as a source of competitive advantage for the firms occupying them. This empirical literature has nonetheless found it difficult to separate the effects of positions from those of firm capabilities and resources. We develop a general model for addressing this issue analytically. Our results suggest that agents can enjoy a competitive advantage due only to their positions, but only when several conditions hold, most notably: (i) the agent has relationships to at least three other firms; and (ii) the agent does not hold too strong a position. We also assess the stability of competitive advantages, finding that, while capabilities and resources can confer a stable competitive advantage, positional advantage is not robust to the activities that others might use to diffuse them.

Keywords: social networks, strategy, biform games

JEL Classification: C7, L1, M2