Network Formation and Strategic Firm Behaviour to Explore and Exploit

The aim of this paper is to investigate the effect of technological opportunities and knowledge tacitness on inter-firm network formation, under two different industry regimes. In the first regime environment is stable and the aim of firms is to exploit knowledge. In this case, they attribute more value to repeated interactions with geographically close firms. In the second regime, there is environmental turbulence, which increases the value of access to novelties from distant partners for the purpose of exploration. The question addressed is, under these regimes how do technological opportunities and knowledge tacitness influence structure of networks? A simulation model is carried out where firms select partners and learn from them, which further shapes their selection process. How the macro structure of the network is shaped from the individual partner selection decisions of firms is analysed. The results reveal that in both regimes richer technological opportunities and higher tacitness generates local and global star firms depending on the parameter range.