Simplistic vs. Complex Organization: Markets, Hierarchies, and Networks in an 'Organizational Triangle'
AbstractTransaction cost economics explains organizations in a simplistic ‘market-vs.-hierarchy’ dichotomy. In this view, complex real-world coordination forms are simply considered ‘hybrids’ of those ‘pure’ and ideal forms, thus being located on a one-dimensional ‘line’ between them. This ‘organizational dichotomy’ is mainly based on relative marginal transaction costs, relative lengths of value-added chains, and ‘rational choice’ of coordination form. The present paper, in contrast, argues that pure ‘market’ and ‘hierarchy’, even including their potential hybrids, are a theoretically untenable and empirically void set. Coordination forms, it is argued, have to be conceptualized in a fundamentally different way. A relevant ‘organizational space’ must reflect the dimensions of a complex world such as dilemma-prone direct interdependence, resulting in strong strategic uncertainty, mutual externalities, collectivities, and subsequent emergent process. This, in turn, will lead either to (1) informally institutionalized, problem-solving cooperation (the instrumental dimension of the institution) or (2) mutual blockage, lock-in on an inferior path, or power- and status-based market and hierarchy failure (the ceremonial dimension of the institution). This paper establishes emergent instrumental institutionalized cooperation as a genuine organizational dimension which generates a third ‘attractor’ besides ‘market’ and ‘hierarchy’, i.e., informal network. In this way, an ‘organizational triangle’ can be generated which may serve as a more relevant heuristic device for empirical organizational research. Its ideal corners and some ideal hybrids on its edges (such as ideal clusters and ideal hub&spoke networks) still remain empirically void, but its inner space becomes empirically relevant and accessible. The ‘Organizational Triangle’ is tentatively applied (besides casual reference to corporate behavior that has lead to the current financial meltdown), by way of a set of criteria for instrumental problem-solving and a simple formal algorithm, to the cases of the supplier network of ‘DaimlerChrysler US International’ at Tuscaloosa, AL, the open-source network Linux, and the web-platforms Wikipedia and ‘Open-Source Car’. It is considered to properly reflect what is generally theorized in evolutionary-institutional economics of organizations and the firm and might offer some insight for the coming industrial reconstructions of the car and other industries.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 14315.
Date of creation: Mar 2009
Date of revision:
Market vs. Hierarchy; Transaction Costs; Complexity; Institutionalization; Network Formation; Hub&Spoke Supplier Networks; Open-Source Networks;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-05 (All new papers)
- NEP-NET-2009-04-05 (Network Economics)
- NEP-SOC-2009-04-05 (Social Norms & Social Capital)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hodgson, Geoffrey M., 1998. "Competence and contract in the theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 35(2), pages 179-201, April.
- Richard N. Langlois, 2003.
"The vanishing hand: the changing dynamics of industrial capitalism,"
Industrial and Corporate Change,
Oxford University Press, vol. 12(2), pages 351-385, April.
- Richard N. Langlois, 2001. "The Vanishing Hand: the Changing Dynamics of Industrial Capitalism," Economic History 0110001, EconWPA.
- Richard N. Langlois, 2002. "The Vanishing Hand: the Changing Dynamics of Industrial Capitalism," Working papers 2002-21, University of Connecticut, Department of Economics.
- Dominique Foray, 2006. "The Economics of Knowledge," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262562235, December.
- Huascar Pessali & Ramon Fernandez, 2005.
"Institutional Economics at the Micro Level? What Transaction Costs Theory Could Listen From Original Institutionalism (In the Spirit of Building Bridges),"
- Huascar Pessali & Ramon Fernandez, 2005. "Institutional Economics at the Micro Level? What Transaction Costs Theory Could Listen From Original Institutionalism (In the Spirit of Building Bridges)," Method and Hist of Econ Thought 0511001, EconWPA.
- Oliver E. Williamson, 2003. "Examining economic organization through the lens of contract," Industrial and Corporate Change, Oxford University Press, vol. 12(4), pages 917-942, August.
- Wolfram Elsner, 2005. "Real-World Economics Today:The New Complexity, Co-ordination and Policy," Review of Social Economy, Taylor & Francis Journals, vol. 63(1), pages 19-53.
- Sydney Winter & Giovanni Dosi, 2000. "Interpreting Economic Change: Evolution, Structures and Games," LEM Papers Series 2000/08, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
- Ikujiro Nonaka & Ryoko Toyama, 2002. "A firm as a dialectical being: towards a dynamic theory of a firm," Industrial and Corporate Change, Oxford University Press, vol. 11(5), pages 995-1009, November.
- U. Witt, 2003. "The Evolutionary Perspective on Organizational Change and the Theory of the Firm," Papers on Economics and Evolution 2003-07, Max Planck Institute of Economics, Evolutionary Economics Group.
- Lerner, Josh & Tirole, Jean, 2002. "Some Simple Economics of Open," Journal of Industrial Economics, Wiley Blackwell, vol. 50(2), pages 197-234, June.
- Perraton, Jonathan, 2001. "The Global Economy--Myths and Realities: Review Article," Cambridge Journal of Economics, Oxford University Press, vol. 25(5), pages 669-84, September.
- Michael Dietrich & Jackie Krafft, 2008. "Towards an historically relevant economics of the firm," Working Papers hal-00211196, HAL.
- Geoffrey Hodgson, 2005. "Knowledge at work: Some neoliberal anachronisms," Review of Social Economy, Taylor & Francis Journals, vol. 63(4), pages 547-565.
- Kay, N.M., 1992. "Markets, false hierarchies and the evolution of the modern corporation," Journal of Economic Behavior & Organization, Elsevier, vol. 17(3), pages 315-333, May.
- Wright, Peter & Mukherji, Ananda, 1999. "Inside the firm: Socioeconomic versus agency perspectives on firm competitiveness," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 28(3), pages 295-307.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.