The Economics of Adaptation and Long-term Relationships
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The Economics of Adaptation and Long-term Relationships

Dean V. Williamson

Do institutions matter in economic theory? Or is the economic analysis of institutions a distraction from the most important action? Indeed, does Vernon Smith’s notion of the “institution-free core” of formal economic theory encompass that most important action? To explore this question, this book opens with an informal tour of the economics of system design out of which an economics of adaptation ultimately emerged. The book then offers explorations, via the application of the economics of adaptation in both law and economics relating to how parties manage relationships within the firm, within the context of long-term contracts, and, most vividly, within the context of antitrust conspiracy.
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Chapter 2: The single-entity question in antitrust: ownership, control and delegation in organizations

Dean V. Williamson

Abstract

By the time a young Ronald Coase was composing “The nature of the firm” (1937), litigation had already started wending its way through American courts that took up questions that really anticipated Grossman et al. on control rights and Simon and Williamson on adaptation, vertical integration and hierarchy in organizations.With the advent of competition law in 1890, courts had already been set up to take up the question of what constitutes a conspiracy to restrain trade.Courts eventually started to characterize conspiracies by sorting out what they are not: single entities replete with internal processes for exercising and delegating control. However, then came questions about whether governance structures that feature less than completely concentrated control could yet secure the status of single entity.A student of organization may yet discern in the many decades of case law a formative theory of the firm.

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