Network Risk: Assessing the Threat of Envelopment

We propose a network risk perspective for use in ex ante strategy formulation and risk assessment. Addressing the need for risk metrics native to the management field, this study offers a model of network exposure and threat identification based upon the concept of a competition network, direct and indirect competitive ties that span industry boundaries. This approach is suited to investigate the drivers of competitive tie formation and dissolution over time. Empirical estimation of risk factors, as well as overall envelopment risk, is then possible by applying a dynamic variation on the exponential random graph model (ERGM). We briefly illustrate the applicability of the network risk approach with data including 17,176 companies with 27,376 competitive ties in the CrunchBase competition network’s largest connected component.