15 - How To Close a Hole: Exploring Alternative Closure Mechanisms in Interorganizational Networks

Summary

Mechanisms of Network Closure

One way to think about social networks is as social structures built from the bottom up through combinations of simpler components defined in terms of local configurations of ties, or “motifs” (Milo et al., 2002; Pattison & Robins, 2002). Local configurations of network ties may be interpreted as observable outcomes of specific social mechanisms such as reciprocity. Because organizations display a strong tendency toward forming ties with their partner's partners, processes of tie maintenance and formation based on closure mechanisms have been of particular interest to scholars of interorganizational networks (Gulati & Gargiulo, 1999; Hallen, 2008; Laumann & Marsden, 1982; Lomi & Pattison, 2006). Closure has been found to shape the formation and maintenance of network ties between organizations operating in a variety of empirical settings ranging from manufacturing relations in the automotive industry (Lomi & Pattison, 2006), to strategic alliances in various industrial sectors (Gulati & Gargiulo, 1999), to equity relations between organizations belonging to the same “keiretsu” (Lincoln, Gerlach, & Ahmadjian, 1996). The accumulation of empirical experiences in the study of interorganizational relations has given shape to the general expectation that partners of partners are (more likely to be) partners. What social mechanisms may be underlying such expectations?

In theoretical terms, the tendency toward transitive closure in interorganizational networks has been framed and interpreted as the direct consequence of the costs and risks inherent in the formation and maintenance of network ties with partners whose quality, capability, and trustworthiness are only imperfectly observable (Baum et al., 2005; Sorenson & Stuart, 2008). To manage these different sources of uncertainty and reduce the exposure to opportunistic behavior of potential partners, organizations tend to form new ties with their partners’ partners based on referrals and shared information (Baker, 1990; Uzzi, 1996). Ties to common third parties also promote adherence to norms by promoting trust and by facilitating social monitoring and sanctioning of opportunistic behavior (Burt & Knez, 1995; Rousseau et al., 1998). In fact, fundamental third-party effects such as reputation and status affect the formation of network ties precisely because direct information about the quality of potential partners is not easily available (Gulati & Gargiulo, 1999; Podolny, 2001). As Coleman succinctly put it: “reputation cannot arise in an open structure” (1988, S107).