New Perspectives on the Modern Corporation series
Edited by Per-Olof Bjuggren and Dennis C. Mueller
Chapter 1: Introduction: The Modern Firm, Corporate Governance and Investment
Per-Olof Bjuggren and Dennis C. Mueller The book is organized into four parts. Part I contains overviews of the theory of the firm. Part II is devoted to firms and organization of economic activities. Part III deals with how the institutional framework of an economy affects investments made by firms. Part IV looks at the impact of ownership structure and board composition on firm performance. I. OVERVIEWS Part I contains two overviews of the theory of the firm from different perspectives. ‘Opening the black box of firm and market organization: antitrust’ by Oliver E. Williamson presents an overview of the characteristics of the transaction cost approach to the study of economic organization. The antitrust implications of this new view of economic organization are also considered. Thus, this chapter reviews both the positive and normative aspects of Williamson’s theory of the firm, and offers a contractual view of economic organization. The black box of the firm is opened in the sense that the governance attributes that distinguish the firm from the market are outlined. The market of the ‘pure vanilla’ type (spot contract character) found in most textbooks is complemented by the contractual deviations that can be characterized as hybrids of market and firm. The new explanations of antitrust phenomena provided by transaction cost analysis are discussed. Instead of solely focusing on market power aspects of vertical market relations, pricing practices and horizontal and conglomerate mergers, a transaction cost analysis provides a broader picture by also including cost-reducing explanations. Williamson shows...