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The Legal Nature of the Firm and the Myth of the Firm-Market Hybrid

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  • Geoffrey Hodgson

Abstract

A sharp conceptual distinction used to be drawn between the firm and the market. However, since the 1970s, many economists and sociologists have argued that the boundaries of the firm are indistinct. Ideas emerged of 'internal markets' within firms, of the 'quasifirm', of 'hybrid firms' and of firms as 'quasi-markets'. This article re-examines the formal, legal conception of the firm. It is argued that there is no good reason to abandon this conception, even in the light of relational contracting, networking, subcontracting and other developments. To avoid confusion, additional terms such as 'supplier network' or 'conglomerate' should be used to describe these phenomena, rather than abandoning a legally-based definition of the firm. With this clarified definition, 'internal markets' and 'hybrid firms' disappear from view.

Suggested Citation

  • Geoffrey Hodgson, 2002. "The Legal Nature of the Firm and the Myth of the Firm-Market Hybrid," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(1), pages 37-60.
  • Handle: RePEc:taf:ijecbs:v:9:y:2002:i:1:p:37-60 DOI: 10.1080/13571510110102967
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    References listed on IDEAS

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    Cited by:

    1. Virgile Chassagnon, 2008. "Qu'est-ce qu'une firme (-réseau) ?," Post-Print halshs-00374758, HAL.
    2. Michael Dietrich & Jackie Krafft, 2011. "Firm development as an integrated process: with evidence from the General Motors–Fisher Body case," Journal of Evolutionary Economics, Springer, pages 665-686.
    3. Gindis, David & Hodgson, Geoffrey M. & Huang, Kainan & Pistor, Katharina, 2017. "Legal institutionalism: Capitalism and the constitutive role of lawAuthor-Name: Deakin, Simon," Journal of Comparative Economics, Elsevier, pages 188-200.
    4. Bart Nooteboom, 2007. "Organization, Evolution, Cognition and Dynamic Capabilities," The IUP Journal of Managerial Economics, IUP Publications, vol. 0(4), pages 31-55, November.
    5. Kapás, Judit, 2003. "A piac mint intézmény - szélesebb perspektívában
      [The market as an institution - in a broader perspective]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1076-1094.
    6. Andrea Szalavetz, 2003. "Peripheral participants in global production networks - changing dynamics in the transformation from industrial to intellectual capitalism," IWE Working Papers 142, Institute for World Economics - Centre for Economic and Regional Studies- Hungarian Academy of Sciences.
    7. Virgile Chassagnon, 2011. "The Network Firm as a Single Real Entity: Beyond the Aggregate of Distinct Legal Entities," Journal of Economic Issues, Taylor & Francis Journals, vol. 45(1), pages 113-136.
    8. Chassagnon, Virgile, 2012. "Une analyse historique de la nature juridique de la firme," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 12.
    9. Stephanie Blankenburg, 2012. "Limited liability," Chapters,in: Handbook of Critical Issues in Finance, chapter 27, pages i-ii Edward Elgar Publishing.
    10. Robé Jean-Philippe, 2011. "The Legal Structure of the Firm," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 1(1), pages 1-88, January.
    11. Bernard Baudry & Virgile Chassagnon, 2012. "The vertical network organization as a specific governance structure: what are the challenges for incomplete contracts theories and what are the theoretical implications for the boundaries of the (hub," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 16(2), pages 285-303, May.
    12. Bart Nooteboom, 2012. "Cognitive Theory of the Firm: A Pragmatic Perspective," Chapters,in: Handbook on the Economics and Theory of the Firm, chapter 21 Edward Elgar Publishing.
    13. Kalle Pajunen, 2010. "A “Black Box” of Stakeholder Thinking," Journal of Business Ethics, Springer, pages 27-32.
    14. Chassagnon, Virgile, 2014. "Consummate cooperation in the network-firm: Theoretical insights and empirical findings," European Management Journal, Elsevier, pages 260-274.
    15. Nooteboom Bart, 2014. "In What Sense do Firms Evolve?," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, pages 185-209.
    16. Richard Carter, 2012. "Transaction Cost Empirical Work," Chapters,in: Handbook on the Economics and Theory of the Firm, chapter 13 Edward Elgar Publishing.
    17. Simon Deakin & David Gindis & Geoffrey M. Hodgson & Kainan Huang & Katharina Pistor, 2015. "Legal Institutionalism: Capitalism & the Constitutive Role of Law," Working Papers wp468, Centre for Business Research, University of Cambridge.
    18. Hodgson, Geoffrey M., 2013. "Observations on the legal theory of finance," Journal of Comparative Economics, Elsevier, pages 331-337.
    19. Kapás, Judit, 2003. "Mutáns vállalatok? A belső hibridekről
      [Mutant firms? On internal hybrids]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 335-349.
    20. Laura Poppo, 2010. "Strategy and Transaction Costs," Chapters,in: The Elgar Companion to Transaction Cost Economics, chapter 21 Edward Elgar Publishing.
    21. Nicolai Foss, 2002. "'Coase vs Hayek': Economic Organization and the Knowledge Economy," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(1), pages 9-35.
    22. Claude Ménard, 2004. "The Economics of Hybrid Organizations," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(3), pages 345-345, September.
    23. Geoffrey M. Hodgson, 2013. "Dr Blaug's diagnosis: is economics sick?," Chapters,in: Mark Blaug: Rebel with Many Causes, chapter 8, pages 78-97 Edward Elgar Publishing.
    24. Cerrato, Daniele, 2006. "The multinational enterprise as an internal market system," International Business Review, Elsevier, pages 253-277.
    25. Dick Ruiter, 2005. "Is Transaction Cost Economics Applicable to Public Governance?," European Journal of Law and Economics, Springer, vol. 20(3), pages 287-303, November.

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