Posts filed under ‘Business/Economic History’

M is for Multidivisional Structure

| Dick Langlois |

As a student of Alfred Chandler, I was excited to see Google’s conversion into Alphabet – which is essentially a multidivisional conglomerate. Chandler chronicled the development of the M-Form structure in the days of the Second Industrial Revolution, beginning with DuPont, and it remains an interesting question whether the same pattern will eventually take shape among the dominant firms of the Third Industrial Revolution.

Generally speaking, a move to the M-Form reflects a maturing of a technology and an industry, when information flows and incentives within a specialized unit – a module, if you wish – become more important than widespread and more flexible information flows within a functional organization. The more radically innovative the company, the more important these widespread information flows. Apple is organized in a functional form, and Microsoft famously returned to a functional form after a few years as an M-Form precisely in order to become more radically innovative in the face of declining revenues from Windows. Of course, Google remains as a functional entity within the Alphabet conglomerate, and the technologies in Alphabet’s other divisions are arguably less related to one another than in, say, the divisions into which Microsoft was once divided. Moreover, Alphabet will keep the two-tiered structure of stockholding that gives considerable power to the three founders, which makes Alphabet less like a vanilla conglomerate and more like the kind of widely diversified pyramidal holding company common around the world but essentially illegal in the United States.

17 August 2015 at 8:38 am Leave a comment

The Myth of the Patent Anti-Commmons

| Dick Langlois |

Just ran across the abstract of a fascinating paper called “The Anti-Commons Revisited” by Jonathan Barnett at USC, which is forthcoming in the Harvard Journal of Law and Technology. Here’s the abstract.

Intellectual property scholars and policymakers often assert that technology and creative markets suffer from “anti-commons” (“AC”) effects that restrain innovation within a web of conflicting intellectual property claims. A minority view asserts that market players have incentives and capacities to correct for AC effects through transactional solutions. To assess the relative merits of each side of this debate, I review a large and diverse body of empirical evidence relating to AC effects in contemporary and historical markets. I independently replicate the most controversial empirical findings, supplement additional research on selected markets, and provide a survey of all documented IP-pooling arrangements in U.S. markets since 1900. The weight of the evidence strongly favors the minority view. Evidence for AC effects is scarce while evidence that markets correct for AC effects is abundant. AC effects are typically preempted or mitigated through cooperative arrangements among small numbers of IP holders or transactional solutions devised by entrepreneurial intermediaries for large numbers of IP holders. This pattern recurs over a diverse array of markets and periods, including automobiles, petroleum refining, aircraft, and radio communications in the early to mid-20th century, and information and communications technology markets from the late 20th century through the present. Contrary to standard assumptions, there is little evidence that these markets experienced reduced or delayed innovation or output despite intensive levels of patent issuance and litigation.

3 August 2015 at 1:40 pm 3 comments

ICC Special Issue on Steve Klepper

| Dick Langlois |

The new issue of Industrial and Corporate Change is a special issue devoted to the legacy of Steve Klepper, who died a couple of years ago at age 64. The editors provide a good survey of Steve’s work, and there are a number of interesting papers in the issue, including one by David Mowery comparing Klepper with Alfred Chandler.

17 July 2015 at 12:45 pm 1 comment


| Peter Klein |

logoI’ve long been involved with the International Society for New Institutional Economics (ISNIE). (In fact, I first met the esteemed Professor Foss at the inaugural ISNIE conference in St. Louis in 1997.) ISNIE was established as an global academic society promoting the study of institutions within the broad tradition established by the organization’s co-founders Ronald Coase, Oliver Williamson, and Douglass North. ISNIE has been a great success, holding annual conferences in the US and Europe, sponsoring an important working-paper series, and boasting thousands of members from all over the world.

Times change, and over the last two decades the study of institutions has moved from the periphery towards the center of economic, social, political, and legal analysis. The statement, “institutions matter,” which might have been controversial in social science in the 1990s, seems trite today. As such, some of ISNIE’s leaders and members saw a need to reposition and rebrand the society to reflect the current academic and policy climate. Last year ISNIE’s members voted, and this year the board approved, a name change. The organization is now SIOE, the Society for Institutional and Organizational Economics. Along with the change is a new website, featuring news, information, a blog, and many other features. The site is a work in progress and editors Bruno Chaves and Jens Prüfer would be happy to receive comments and suggestions.

I’m looking forward to the next twenty years with SIOE!

6 July 2015 at 1:01 pm Leave a comment

Casson on Methodological Individualism

| Peter Klein |

Thanks to Andrew for the pointer to this weekend’s Reading-UNCTAD International Business Conference featuring Mark Casson, Tim Devinney, Marcus Larsen, and many others. Mark’s talk (not yet online) focused on the need for methodological individualism in international business research. “Firms don’t take decisions, individuals do. When you say that a firm pursued an international strategy, you really mean that that the CEO persuaded the individuals on the board to go along with his or her strategy.” As Andrew summarizes:

Casson spoke at great length about the need for research that focuses on named individuals, is based on the extensive study of primary sources in archives, takes social and political context into account, and which looks at case studies of entrepreneurs in different time periods. In effect, he was calling for the re-integration of Business History into International Business research.

And a renewed emphasis on entrepreneurship, not as a standalone subject dealing with startups or self-employment, but as central to the study of organizations — a theme heartily endorsed on this blog.

14 June 2015 at 1:53 pm Leave a comment

Essays in Honor of Joel Mokyr

| Peter Klein |

O&M friends Avner Greif, Lynne Kiesling, and John Nye have edited an important collection of essays by students, colleagues, and friends of the distinguished economic historian Joel Mokyr: Institutions, Innovation, and Industrialization: Essays in Economic History and Development (Princeton University Press, 2015). Dust-jacket blurb:

This book brings together a group of leading economic historians to examine how institutions, innovation, and industrialization have determined the development of nations. Presented in honor of Joel Mokyr — arguably the preeminent economic historian of his generation–these wide-ranging essays address a host of core economic questions. What are the origins of markets? How do governments shape our economic fortunes? What role has entrepreneurship played in the rise and success of capitalism? Tackling these and other issues, the book looks at coercion and exchange in the markets of twelfth-century China, sovereign debt in the age of Philip II of Spain, the regulation of child labor in nineteenth-century Europe, meat provisioning in pre-Civil War New York, aircraft manufacturing before World War I, and more. The book also features an essay that surveys Mokyr’s important contributions to the field of economic history, and an essay by Mokyr himself on the origins of the Industrial Revolution.

Here are some useful book reviews by Doug Allen and Robert Margo, and here is some interesting dialogue between Mokyr, Nye, and Deirdre McCloskey as comments on an article by Don Boudreaux.

12 June 2015 at 9:39 am Leave a comment

Capabilities, Transaction Costs, and Buzz Lightyear

| Dick Langlois |

I joked in a comment on Peter’s last post about naming classes of articles after fairy-tale (or is it Disney?) characters. Is there a Disney moniker for a work that keeps getting reinvented? As I get older, I think about this more often, and I’m probably entering the dread legacy-protection phase of my career.

This came to mind because I happened upon an interesting paper from Nick Argyres and Todd Zenger, which has been out for a while but which I hadn’t seen. The authors propose to synthesize capabilities theory and transaction-cost economics. A worthy goal. Except that Paul Robertson and I did this twenty years ago. Argyres and Zenger point out, as Paul and I did, that neither capabilities alone nor transaction-costs alone can explain the boundaries of the firm. They settle on an account in which firms integrate because of strong complementarities among assets that create hold-up problems if accessed through markets. Their example is Disney’s relationship with and eventual acquisition of Pixar. (I know! A work that gets constantly reinvented is a Buzz Lightyear!) Far from being a general theory of capabilities and transaction costs, however, this is a special case of the general theory Paul and I proposed. We talked specifically about this kind of case (see especially pp. 38-40), which we called the appropriability variant of our account, associated with Teece (1986), to distinguish it from the entrepreneurial variant. In the entrepreneurial variant, firms integrate into complementary activities because of the dynamic transaction costs of using markets. Argyres and Zenger cite my 1992 ICC paper on dynamic transaction costs, but they make it out to be a claim that capabilities alone can explain vertical integration, which is of course the opposite of what the article actually says. They offer the gnomic remark that my definition of dynamic transaction costs “mirrors that of Williamsonian transaction costs.” But isn’t that the point? They really are transaction costs, and you can’t explain vertical integration without transaction costs. I’m sure there are a lot cases like Pixar out there, and I have certainly never denied that hold-up threats are sometimes a cause of vertical integration. But as I learn more about the history of vertical integration as part of the Corporation and the Twentieth Century manuscript I’m now working on, dynamic transaction costs are on the whole much more important than hold-up threats. (Also extremely important is government policy, which is really the point of this new project.) I’m sorry this sounds a bit negative, since the Argyres and Zenger paper really is a terrific article that is right-headed and develops the appropriability variant in much more depth than Paul and I did in our quick sketch.

Another paper that reinvented (and significantly extended) Langlois and Robertson (1995) is Jacobides and Winter (2005). Of course, I can’t very well criticize Sid Winter, since the whole idea of dynamic transaction costs came out of my effort in the 80s and 90s to apply Nelson and Winter (as well as Coase) to the problem of the boundaries of the firm, something that Nelson and Winter themselves had not then gotten around to.

2 June 2015 at 10:28 am Leave a comment

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Our Recent Books

Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).


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