How Firms Choose their Partners in the Japanese Supplier-Customer Network? An application of the exponential random graph model

This work aims to explain how firms behave and select their suppliers and customers in the Japanese production network. We study a supplier-customer network of listed firms in Japan (3,198 firms with 20,417 links). In order to specify how firms choose their partners, the so-called exponential random graph model is applied to estimate the ties formation process. For the estimation of such a large-scale network, we employ a recent technique of sampling called the improved fixed density Markov Chain Monte Carlo (MCMC). Our main result shows that all of the effects (social and economic effects) are statistically significant in explaining the ties formation between firms. Social effects such as mutuality and transitivity with common partners in different directional links between suppliers and customers are shown. Moreover, homophily with the same industrial sectors and geographical locations, and disassortative mixing between low-profit firms and high-profit ones are also found. We argue that our method is extended to the spatially heterogeneous structure of communities reflecting industrial sectors and geographical locations and temporal changes of supplier-customer relationships in such a framework of the stochastic actor-oriented model.