Continental differences in the clusters of integration: Empirical evidence from the digital commodities global supply chain networks

- We study the relation between connectivity and clustering in the supply chain for the delivery of digital commodities.
- We find strong evidence of hierarchical networks, where the best connected firms, have poorly interconnected neighbours.
- Our results show that European supply chain networks are more hierarchical than the American ones.
- We interpret connectivity hierarchies in terms of the bargaining power in the value chain revenue sharing.

Digital commodities are delivered worldwide through a Global Supply Chain Network of providers. These are usually interconnected via Local Supply Chain Networks, based around Internet Exchange Points, the physical places where most digital exchanges take place.Providers compete both for business and final customers, while cooperating the exchanges of information flows composing the digital commodities, to provide a complete, end to end, service to final users.A myriad of interconnection decisions form the connectivity's architecture of this Global Supply Chain Network, designing the rules of the business game played by the operators. This paper, using a dataset of interconnection protocols over 195 Internet Exchange Points across the World, focuses on the relationship between a provider's connectivity and clustering: the mutual connectivity among the operators this provider is connected to. The strategic relevance of this relationship between connectivity and clustering is clear: the better connected a provider is, the easier it is to deliver the digital commodities with high quality and low costs and, when the neighbours of a provider are less interconnected among themselves, it is easier, for the provider, to exert its bargaining power over them.We estimate an econometric model finding that the continental location of an Internet Exchange Point has a significant effect on the sign of the elasticity between clustering and connectivity. This indicates that Local Supply Chain Networks display significant differences in their clusters of integration, hierarchical organization and complexity, depending on whether they are based in Europe, North America or Rest of the World.