Notes
Outline
The transaction-cost dichotomy.
Limited effect on production costs.
The economics of organization.
Asset specificity and holdup.
Maintained assumption.
— Williamson (1985, p. 88)
Missing elements.
Capabilities.
Capabilities.
Capabilities as the “knowledge, experience, and skills” of the firm.
Similar capabilities.
Complementary capabilities.
Capabilities.
Capabilities.
Production knowledge just as imperfect (and tacit and sticky) as knowledge in transacting.
Coordination.
As an entrepreneurial or innovative, not (only) a managerial or monitoring, activity.
As involving changes in the structure of economic knowledge.
Organization and economic change.
Organization and economic change.
Strength of the selection environment.
“Good enough” not “optimal.”
Organizational form may depend on the past.
Path dependency.
Organizational form may depend on the future.
Structural uncertainty.
“Dynamic” governance costs.
The costs of negotiating with, teaching, and persuading those who control or can cheaply create complementary capabilities.
The costs of not having the capabilities you need when you need them.
Two scenarios.
The Visible Hand.
The Vanishing Hand.
Scenario 1.
Creative destruction of existing external capabilities.
Unified ownership and coordination overcomes "dynamic" transaction costs.
Antebellum America.
High transportation and transaction costs.
The antebellum value chain.
Postbellum America.
The rise of the large corporation.
Refrigerated meat packing.
Before the railroads, meat raised and slaughtered locally
Opening of the western range led to economies of scale in cattle raising.
Live animals shipped to eastern cities.
Refrigerated meat packing.
Swift recognized possibilities for additional economies of scale.
“Disassembly line” in Chicago.
Ship refrigerated dressed meat to eastern cities.
Refrigerated meat packing.
Systemic reorganization of meat-packing industry.
Required network of refrigerated railroad cars, ice houses, warehouses, and retailing outlets.
Swift forced to integrate vertically to overcome dynamic transaction costs.
The rise of the large corporation.
The Chandlerian value chain.
Why management?
Why management?
Product-flow uncertainty.
Scenario 2.
Creative destruction of existing internal capabilities.
Development of institutions to support market exchange.
The Visible Hand.
Adam Smith:
The Visible Hand.
Management becomes a profession.
The M-form decouples strategic functions from day-to-day management.
Financial markets separate function of capital provision from management.
Markets as a way to buffer uncertainty.
The Vanishing Hand.
The Vanishing Hand hypothesis.
The New Economy.
Increasing population
and income thicken markets.
With the growth of knowledge, complementary capabilities in the chain of production become less similar.
Institutions emerge to support specialized exchange.
Modularity standardizes
meta-rules, not products.
Financial and other innovations,
including new rights bundles.
The New Economy value chain.
Technology and the New Economy.