TCE

Question 1

5 TCE Base Cites

Answer 1

Commons ‘31:
Transactions not firms should be the unit of analysis

Coase ‘37

• Coined the term transaction cost
• Why is there not just 1 big firm?

Simon’56:
Bounded Rationality is a central tenet

Jensen & Meckling ‘76
Self-Interest (Opportunism) is a central tenet (borrowed from agency theory)

Different types of assets (Williamson’75) - later refered to by Teece as generic or specific (Teece ‘86)

Question 2

Williamson’75/81/85

Answer 2

-Develops TCE theory into what we know today (later winns the nobel prize).

• Without transaction costs (search, negotiation) there would be no reason for the firm to exist. Firms try to reduce T.C by undertaking the most effecient governance choice (‘75)
• Choice is between Heirarchy/Hybrid or Market (‘81)
• AS, U, F vary in each transaction and determine the most efficient governance choice (Williamson’85)

Question 3

(Ouchi, 1980)

Answer 3

in small numbers exchanges parties are more likely to engage opportunistically.
3 forms
Clan -> good when High Goal Congruence and it is difficult to measure Opportunism (everyone becomes embedded)
Beuracracy -> Middle
Market -> Good when Low Goal Congruence and opportunism is easy to see.

Question 4

Dyer, 2002

Answer 4

economizing on transaction costs improves firm performance and should be the main purpose of economic institutions

Question 5

Poppo’98

Answer 5

Tests TCE vs KBV: striving to integrate TCE with the competency based perspective (KBV)

• Supports TCE view of AS + —> Heirarchy
• Most Props not supported (weak methods, measures are subjective)

Question 6

Leiblien&Miller’03

Answer 6

TCE vs RBV vs RealOptions
They make transaction level predictions, firm-level predictions, and real options levels predictions —> Form Outsourcing Decisions.
*However, TCE is a Prescriptive economic formula designed to uncover the most efficient method. The authors here treat the behavioral decision as the DV rather than what might have been the optimal choice.

Question 7

Nickerson et al ‘01

Answer 7

New theoritical contribution
- linked TCE with Porter Strategic Positioning
- contend that if followed in isolation, each theory
can lead to inferior performance (but ‘weaknesses of Williamson’s are the strengths of Porter’s perspective and vice versa.
- SAMPLE: courier services in Japan
Market position/resource profile (Porter) and Make/Buy decision (TCE) together produce the Optimal Performance

Question 8

Kapoor’12

Answer 8

TCE / KBV
RQ: you are in a rapidly changing dynamic environment and you want to bring products to market as fast as possible - do you Vert Int or Outsource?
Answer:
1) Vert Intergration —+–> Time to market ( a performance measure)
2) Vert Integration is better when the new product was enabled by a new combination of resources (archetectural change; KBV/DC) vs Swapping Components (RBV)

Question 9

Park&Steensma’12

Answer 9

firms performed better using CVC rather than VC when uncertainty and asset specificity need was high. Additionally, attributes that make CVC an optimal choice for some ventures make it suboptimal for others, particularly those seeking to do business or establish partnerships with competitors of the CVC financier.

Question 10

Crook’13

Answer 10

Meta-Analysis of TCE

• largely supportive of Williamson
• Supporting the RBV, assets that are highly specified and strategic (VRIO), are related to hierarchical governance (i.e., within firms)
• Findings show support matching transactions to governance improves firm performance
• New theoretical challenges to TCE-Real Options Theory
• managers prefer flexibility in times of uncertainty, and they will hold off on irreversible investments until uncertainty is reduced (e.g., as uncertainty increases firms are less likely to use hierarchical governance)
• Resource Based View (Barney, 1991)-Some resources are most valuable when tightly bundled within the hierarchy, org routines, social relationships, and processes (i.e., highly specified assets)
• relational governance (Dyer & Singh, 1998); trust (e.g., Toyota and its suppliers)

Question 11

Ghoshal & Moran (2005)

Answer 11

Critique of TCE

• They disagree with the key assumption of opportunism-
• they say TCE ignores social control (Ouchi, 1980) and social relations (Granovetter, 1985), ignores the reality that people are bound by social expectations, trust, and other constraints on their behavior,
• They say it is a BAD theory and self-fulfilling prophecy that we are training our students to act like self-interested agents in search of perfect effeciency.

Question 12

Add-ons:

Ghoshal, 05

David&Han, 2004

Crook’ 13

Nickerson2014
Wolter2008

Weber&Walker2014

Answer 12

Ghoshal, 05- Bad Theory, Bad Practice

David&Han, 2004: Review Mixed Results, applied badly by many. F & U only matter under higher AS.

Crook’13 - Meta, lots of support.

Nickerson2014 - Reconsidering the integration of capabilities perspective with TCE.
Wolter-2008 - Putting forth a synthesizing theoritical argument for competencies perspective with TCE.

Weber&Walker2014 - bringing the cognitive perspective into TCE framework.