Innovative Network in Transition: From the Fittest to the Richest

Abstract

Understanding global interfirm network evolutionary patterns and their interplay with individual firms’ actions is a fundamental issue in strategy research. It is also important to examine power dynamics as variation in the relative positions of firms in an exchange network is one of the main causes capable of transforming the distribution of power and the very structure of interfirm networks. Using recent theoretical and methodological advances in studies of complex systems, we show that the interfirm alliance network of one of the fastest growing sector of the biopharmaceutical industry – the antibody sector- continually changes from 1998-2007 and evolves from a scale-free to a small-world structure. These very different network structures also epitomize distinctive power structures led by either fittest firms (novel highly innovative firms), or richest firms (incumbents). Our unique finding that scale-free as well as small-world structures can emerge in the life cycle of an industry major sector, and thus that networks can switch from one ‘universal’ structure to another, gives new insight into complex network dynamics and a baseline for constructing future models of interfirm network evolution and dynamics, taking into account structure and firms’ position.

Keywords: alliance network dynamics, radical innovation, centrality, asymmetry of power, small worlds, scale-free

JEL Classification: L14, L22, L16, L24, 03