MODELS, ORGANIZATIONS, and FIRMS

1. MODELS, ORGANIZATIONS, and FIRMS

2. 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 • Thatthese costs depend upon the trustworthiness of the players and attributes of the market

3. 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

4. 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 I

5. Structure-conduct performance vs. price theory II • Both: Market arrangements reflect customer tastes, wants, and needs • 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

6. 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.

7. Exhibit A

8. 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

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

10. Figure 1 1950

11. Figure 2 1950

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