Handbook of Economic Organization
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Handbook of Economic Organization

Integrating Economic and Organization Theory

Edited by Anna Grandori

This comprehensive and groundbreaking Handbook integrates economic and organization theories to help elucidate the design and evolution of economic organization. Economic organization is regarded both as a subject of inquiry and as an emerging disciplinary field in its own right, integrating insights from economics, organization theory, strategy and management, economic sociology and congnitive psychology. The contributors, who share this integrated approach, are distinguished scholars at the productive peak in their fields. Each original, state-of-the art chapter not only addresses foundational issues, but also identifies key issues for future research.
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Chapter 20: Modularity and economic organization: concepts, theory, observations, and predictions

Ron Sanchez and Joseph T. Mahoney

Extract

This chapter addresses modularity as a basis for organizing economic activity. We first define the key concepts of architecture and of modularity as a special form of architecture. We then suggest how modular systems of all types may exhibit several properties of fundamental importance to the organization of economic activities, including greater adaptability and evolvability than systems that lack modular properties. We draw extensively on our original 1996 paper on modularity and subsequent research to suggest broad theoretical implications of modularity for: (1) firms’ product strategies and the nature of product market competition; (2) the organization designs firms may adopt and the industry structures that can result when significant numbers of firms adopt modular product architectures; and (3) learning processes and knowledge structures at the firm and industry levels in modular product markets. We also discuss an evolutionary perspective on modularity as an emergent phenomenon in firms and industries. We explain how modularity as a relatively new field of strategy and economic research may provide a new theoretical perspective on economic organizing that has significant potential for achieving important integrations of microeconomic and macroeconomic theory. We suggest some areas for further research that may be especially fruitful in this regard.

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