ABSTRACT
This chapter argues that the nature of networks as intangible assets is connected to their economic efficiency in producing innovation. It looks at the empirical research on innovation, with its recurrent theme of vertical disintegration. The chapter discusses the theory of vertical integration itself, which requires innovation to justify idiosyncratic demand shocks that apparently explain the existence of network industrial structures. It suggests that a developed model of bipartite networks, proposed by R. Kranton and D. Minehart, may be a useful way of looking at innovation in industries where new technologies and products are normally supplied by third-party suppliers rather than in-house. Kranton and Minehart list a number of industries to which network models may be applied, dividing them into two broad categories consisting firstly of the fashion, culture, and craft industries and secondly of high-tech.
