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Nets at sea: Horizontal and vertical interfirm networks in the Clyde River maritime economy (Scotland)

Arie Lifschitz, 2006
Faculty Advisor: Paul Ingram

Abstract

Breaking typical conventions of treating interfirm networks as rationalistic and idealized forms, this study explores networks' fundamental connectedness with their social and cultural contexts. I distinguish here between two forms of interfirm networks: horizontal networks that typically connect similar actors within an industry, and vertical networks that typically link dissimilar actors from different industries. Using data from the shipbuilding and shipping industries on the Clyde River from 1711 to 1990, I examine the implications of this distinction for the creation and appropriation of value in the two forms of networks. Specifically, I propose that horizontal and vertical networks provide firms with distinct enough benefits so that each, independently, affects firm performance. Additionally, I propose that disparate cultural rules may variably influence the distribution of value in horizontal and vertical networks.

In the context of the Clyde River maritime economy, I find that horizontal and vertical interfirm networks indeed had distinct effects on firm failure in both the shipbuilding and shipping industries. Importantly, whereas horizontal ties benefited firms in both industries, the vertical ties that connected actors across these industries decreased failure rates for the dominant shipbuilding industry, while increasing failure rates for the significantly weaker shipping industry. Additional analyses suggest that the distribution of value in the Clyde's horizontal networks was influenced by moral considerations, as established firms supported their younger and smaller counterparts. In contrast, value appropriation in the Clyde's vertical networks appears to have been driven more by power dynamics. Power was evident at both the industry level, as exhibited by the contrasting effects vertical ties had on the shipbuilding and shipping industries, and at the firm level, when established firms leveraged value from their weaker exchange partners.

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