Shared network investment (Q698244)

This paper discusses the issue of the sharing fixed-capital investment cost among firms that remain business rivals in short-term production. The modelling of fixed-investment cost sharing by definition catches either economies of scale or cost subadditivity. Despite the multifunctional nature of inter-firm cooperations, the cost-saving function illustrated in the model is essential to understand benefits of the shared network investment. The model describes the cost-saving benefits of investment pooling in a network club while the grouping does not function as a collusive instrument on pricing and production. Using this model, the authors conclude that the nature of the investment-cost function determines the network club's impact on the equilibrium firm-capacity size. Different dues-assignment rules are found to affect firms' incentive in achieving collective efficiency. Mathematically, conditions of equilibrium under maximization of long-run profits are studied.