General Theory

The theory of the comparative market economies (Hall and Soskice 2001) draws a core distinction between two basic types of market economies – liberal market economies and coordinated market economies, which constitute ideal types at the poles of a spectrum along which many national market economies can be arrayed. In liberal market economies, like those of the USA and the UK, firms coordinate their activities primarily via hierarchies and a competitive market mechanism which are well described by classic literature (Williamson 1985). The market mechanism in a context of competition provides a highly effective means for coordinating firms’ endeavors in liberal market economies. In coordinated market economies, like those of Japan and Germany, firms depend more heavily on nonmarket institutional coordination to coordinate their endeavors with other economic actors to construct their core competencies. Firms make extensive use of nonmarket modes of coordination, including network coordinating and monitoring, reliance on collaborative as opposed to competitive relationships, and relational or incomplete contracting (Hall and Soskice 2001, p. 8).