Empirical analysis of network effects

I develop a variety of empirical methods for understanding different aspects of networks, defined as interconnected groups of firms. Various reasons have been proposed for why firms form these networks, such as standard setting, rapid access to competitive capabilities, and strategic positioning. Yet empirical evidence supporting theoretical analyses of these effects is relatively scant, and at the same time the recent growth of the information economy has greatly increased their prevalence and importance. Here I seek to contribute to our understanding of the economics of networks through a focus on two questions: how to empirically understand a firm's motivation to join various types of networks, and how to measure the stock market's valuation of their presence in the network. This thesis examines these themes in different market and technological contexts. Differences across these studies in the definition of a network, in measurement methods, and in modeling techniques reflect the richness of the network phenomenon.; The first chapter analyzes the role of geographic distance between firms which join a network by entering into strategic partnerships. Firms are not distributed uniformly in geographic space, and the density of firms in a region may play an important role in determining the costs and feasibility of forming alliances. I find that knowledge flows as measured by alliances are more common between proximate firms for licensing and R&D agreements but not for marketing.; The second chapter quantifies the benefits of joining a network of allied firms by analyzing the stock market's response to a firm's entry into different positions within a network. Theory suggests that being centrally positioned in a network confers two major benefits: greater access to information flows, and control over collective decisions. The results are consistent with these propositions.; The last chapter addresses a firm's motivation to join an informal network in the context of a standards war. I examine the importance of compatibility and network effects on technology adoption decisions of suppliers of Internet access as they upgrade to a new high speed modem standard. The results confirm the strong influence of network effects on adoption of new technologies.