MODELS, ORGANIZATIONS, and FIRMS

Instructional Goals: You will understand: That Markets and organizations are alternative venues for exchange That the choice of venue boils down to a question of information costs That these costs depend upon the trustworthiness of the players and attributes of the market

Additional Objectives:  Why organizations now pay more attention to creating value for customers than to inter-organizational rivalry.  Why building relationships with customers matters more now than ever before

Structure-conduct performance vs. price theory I S-C-P Market structure determines organizational conduct Organizational conduct determines performance PT Game theory. Transaction cost analysis Contestable market analysis

Structure-conduct performance vs. price theory II Both: Market arrangements reflect customer tastes, wants, and needs S-C-P S-C-P: Market arrangements/structures are givens PT: Actual market arrangements take the forms that they do because of conscious efforts to create and shape them. They are constantly changing

Market Power Collusion Government protection Superior product-market strategies or tactics; Special knowledge that enables you to make or deliver a product that other organizations cannot imitate or to make it at a lower cost.

Exhibit A

Transaction Cost Analysis Institutional arrangements reflect exchange costs: – search costs – negotiation costs – monitoring and enforcement costs These are information costs Reducing them can radically affect organizational designs and market structures

Economic Revolutions of the 20th Century Bureaucratic revolution -- turn of the century Managerial revolution -- mid-century NOW Marketing revolution -- NOW

Figure

Figure

Bottom line: MARKETS are in, SMALL is beautiful, and CUSTOMERS are sovereign.