On the emergence of scale-free production networks

TL;DR

This paper introduces a dynamical model demonstrating that competition among intermediate good producers naturally leads to the formation of scale-free production networks, aligning with observed firm demographics.

Contribution

It presents a simple yet robust model that explains the emergence of scale-free networks in production, extending traditional equilibrium approaches.

Findings

The model reproduces key stylized facts of firm demographics.

Competition among producers leads to scale-free network structures.

The approach generalizes standard equilibrium models.

Abstract

We propose a simple dynamical model of the formation of production networks among monopolistically competitive firms. The model subsumes the standard general equilibrium approach \`a la Arrow-Debreu but displays a wide set of potential dynamic behaviors. It robustly reproduces key stylized facts of firms' demographics. Our main result is that competition between intermediate good producers generically leads to the emergence of scale-free production networks.