Introduction Flashcards
Neo-classical assumptions?
- if markets work ok, price is sufficient statistic – Hayek 1945
- p has all info needed
- firm seen as production function in presence of perfect info that profit maxes – firm is a black box
- so why is there variation in transactions? – ignores importance of internal business structure
Problems from black box perspective?
- neo classical limited interest in problems arising from agency and corporate governance – is acc v important
Internal structure affects goals?
- firm goals in presence of agency
- some firms favour giving dividends comp to investing in improving
- some prefer to max sales – growth over profits – Baumol model
- growth max and managerial utility
- max anything unlikely due to info problems
Price and output in firm armoury?
- others that are important -
- advertising
- product comp
- spatial comp
- move and countermove
- ignores process where p set
- bidding and auction process
Firm emergence and evolution?
- what explains changing pop of firms
- why are some structures more prominent now than before
What happens when info is imperfect?
Do types of information problem determine business structure?
Asymmetric information problems a live issue
“markets and hierarchical organisations, such as firms, represent alternative governance structures which differ in their approaches to resolving conflicts of interest. ….a key prediction of Williamson’s theory….is therefore that the propensity of economic agents to conduct their transactions inside the boundaries of a firm increases along with the relationship-specific features of their assets
Recent phenomena of interest?
- Fuzzy firm boundaries
- Changing business demography
- Industrial structure and form
- Globalisation
- Post recession issues
Fuzzy firm boundaries?
- left to market and what is internalised – firms in same industry w internalising and subcontracting – can also change quickly
- manufacturing change – comakership and quasi vertical integration – more comakership w firms collaborating together – quasi vertical w firms and diff stages operating as one
- digital tech
Changing business demography?
New starts, firm deaths, M&A activity
- trends in aggregate concentration
- M&A – mergers and acquisitions
- why do some succeed/fail
Industrial structure and form?
- changes in industrial structure
- growth of services, non-market (don’t get much productivity growth here though) and third sector
- mutuals, co-ops, profit sharing, social enterprise, charities etc.
- services ab 75-80% GDP UK
Globalisation?
- integration of capital trade, tech flow
- MNEs strong influence in flows
- global organisation of production and control
- IT, communications and liberalisation of regulation
- concentration ratios – problems for consumers?
- industry concentration – how many firms
- aggregate concentration – how much is focused on top 100 firms
Post recession issues?
- controlling managerial discretion
- corporate governance after fall
- rise of private equity
- eclipse of public corporation
Conclusions?
Modern economic organisations increasing complexity
What are the economic and decision problems resulting from this complexity?
What is the nature of MBE in absence of neo-classical assumptions, and in presence of agency?
Can theory help us to explain modern corporate structures, behaviour and development?
Useful to examine specific MBE phenomena
