Resource configuration, inter-firm networks, and organizational performance

• The empirically-documented association between centrality and performance could be driven by unobserved resources.
• This paper develops a model of network formation where organizations have heterogeneous resources.
• Main result is that variation in resources actually induces a negative or neutral association between centrality and performance.
• Main result suggests that some criticism of the empirically-documented association between centrality and performance is unwarranted.

Empirically-documented associations between network position and organizational performance could be driven by unobserved resources. I study this issue theoretically, by developing an equilibrium model of inter-firm network formation. Specifically, I investigate how an organization’s resource configuration impacts both network position and performance. Under certain conditions, I show that variation in resources induces no relationship between performance and either degree or centrality; or this relationship is even negative. This result is driven by the existence of organizations that find highly complementary partners. Such organizations perform well and focus most resources within the highly-complementary alliance, which in turn makes them less central.