Shock propagation through customer-supplier relationships: An application of the stochastic actor-oriented model

Abstract

The dynamics of individual firms’ behaviors and the evolution of interfirm network mutually affect each other, and its observation is the consequence of various effects originating from different mechanisms. To untangle these intertwined effects and to quantify how firms interact with their trading partners, we apply the stochastic actor-oriented model (SAOM) to firm data with customer-supplier relationships in Japan. We separate two propagations driven by customers and suppliers, and find that the both types of propagation are statistically significant and crucial factors in the dynamics of firms’ behaviors.