Social Structure and Competition in Interfirm Networks: The Paradox of Embeddedness

TLDR

Embeddedness research, a key area in sociology and economics, explores how social structure shapes economic action and influences outcomes. This chapter aims to develop a specification of embeddedness and examine how interfirm networks operate under implicit ceteris paribus assumptions. The authors analyze interfirm networks by formulating propositions that implicitly assume ceteris paribus conditions. Embeddedness yields time economies that benefit firms yet influence allocative efficiency and prices, increased integration combined with resource dependency heightens network vulnerability, and higher investment promotes productivity, living standards, mobility, and wealth.

Abstract

This chapter aims to develop one of perhaps multiple specifications of embeddedness, a concept that has been used to refer broadly to the contingent nature of economic action with respect to cognition, social structure, institutions, and culture. Research on embeddedness is an exciting area in sociology and economics because it advances understanding of how social structure affects economic life. The chapter addresses propositions about the operation and outcomes of interfirm networks that are guided implicitly by ceteris paribus assumptions. While economies of time due to embeddedness have obvious benefits for the individual firm, they also have important implications for allocative efficiency and the determination of prices. Under the conditions, social processes that increase integration combine with resource dependency problems to increase the vulnerability of networked organizations. The level of investment in an economy promotes positive changes in productivity, standards of living, mobility, and wealth generation.