Processes, Complexities and Ecological Similarities
Chapter 13: Using markets and marketlike mechanisms to manage a multidivisional business efficiently
The focus of this chapter is on how and to what extent the use of market and market- like mechanisms can improve the economic performance of a business as judged by its profitability. The following managerial policies will be considered in turn from this point of view: (1) make- or- buy decisions (contracting out); and (2) the value of transfer pricing as a managerial device within a multidivisional firm. Particular attention is paid to the transaction costs associated with these policies, especially market transaction costs, and to principal–agent problems, issues raised, for example, in the set of contributions compiled by Williamson and Masten (1999). Coase (1937), and subsequently Williamson (1975; 1979), emphasized the importance of transaction costs as an influence on the optimal economic organization of business firms, and Williamson also stressed the importance of principal–agent problems as influences on the efficient management of business.
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