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Economic Approaches to Organization

Economic Approaches to Organization

6th Edition

Sytse Douma, Hein Schreuder

Mar 2017, Paperback, 400 pages
ISBN13: 9781292128900
ISBN10: 1292128909
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Now in its fifth edition, Economic Approaches to Organisations remains one of the few texts to emphasize the importance of economic issues and developments in the study of organisations and management. It explains in a non-technical way different economic approaches such as behavioural theory of the firm, game theory, agency theory, transaction cost economics, economics of strategy and evolutionary approaches. This latest edition is packed with practical examples from real-world companies, helping you to understand how the concepts relate to economic and organizational problems happening in the world today.

Preface xi

Acknowledgements xv

Part I Foundations 1

1 Markets and organizations 3

1.1 The economic problem 3

1.2 The division of labour 5

1.3 Specialization 7

1.4 Coordination 9

1.5 Markets and organizations 11

1.6 Information 14

1.7 The environment and institutions 16

1.8 Historical perspective 22

1.9 Summary: the conceptual framework of this book 24

1.10 Outline of the book 25

Questions 26

Note 26

2 Markets 27

2.1 Introduction 27

2.2 Market interaction: analysis of demand and supply 28

2.3 Decision-making by consumers 29

2.4 Decision-making by producers 31

2.5 Market coordination 32

2.6 The paradox of profits 33

2.7 Competitive markets 33

2.8 The main assumptions underlying standard

microeconomic theory 34

2.9 Summary: how according to standard microeconomic

theory decisions are coordinated by the market 36

Questions 37

3 Organizations 38

3.1 The world of organizations 38

3.2 Organizational coordination 39

3.3 Types of organizations 44

3.4 Organizational markets 49

3.5 Organized markets 50

3.6 The rise of the Internet and the digitization of organizations 53

3.7 Digital platforms: a new coordination mechanism 56

3.8 The Platform Organization 59

3.9 Summary: how organizations achieve coordination 62

Questions 64

Notes 64

4 Information 66

4.1 Coordination and information 66

4.2 Hidden information 71

4.3 Hidden action 78

4.4 The value of information 83

4.5 Information as an economic good 86

4.6 Summary: information problems for markets and organizations 88

Questions 90

Notes 91

5 Game theory 92

5.1 Introduction 92

5.2 The prisoner’s dilemma 93

5.3 Coordination games 97

5.4 The entry game 99

5.5 The iterated prisoner’s dilemma 103

5.6 Auctions 105

5.7 Evolutionary game theory 111

5.8 Summary: insights from game theory 116

Questions 118

6 Econs and Humans 119

6.1 Introduction 119

6.2 The social domain versus the economic domain 120

6.3 Economic, social and moral man: bounds

on self-interest 121

6.4 Bounds on rationality 124

6.5 Prospect theory 127

6.6 Summary: behavioural economics 130

Questions 131

Part II Economic Approaches 133

7 Behavioural theory of the firm 135

7.1 Introduction 135

7.2 The firm as a coalition of participants 135

7.3 Organizational goals 139

7.4 Organizational expectations 142

7.5 Organizational choice 142

7.6 From bounded rationality to behavioural economics 145

7.7 Summary: goals and decision-making within

the firm in behavioural theory 150

Questions 152

Note 154

8 Agency theory 155

8.1 Introduction 155

8.2 Separation of ownership and control 156

8.3 Managerial behaviour and ownership structure 159

8.4 Entrepreneurial firms and team production 165

8.5 The firm as a nexus of contracts 167

8.6 Theory of principal and agent 169

8.7 Applying agency theory 178

8.8 Summary: agency relations between owners,

managers and employees 182

Questions 184

Note 186

9 Transaction cost economics 187

9.1 Introduction 187

9.2 Behavioural assumptions: bounded rationality

and opportunism 189

9.3 Dimensions of transactions 195

9.4 Peer groups 200

9.5 Simple hierarchies 202

9.6 Multistage hierarchies: U-form and M-form enterprises 204

9.7 Organizational markets 205

9.8 Digitization and transaction costs 208

9.9 Markets and organizations: are these all there is? 211

9.10 Governance in a three-level schema 223

9.11 Summary: effect of transaction costs on choosing

between markets and organizations and

organizational forms 225

Questions 227

Notes 228

10 Economic contributions to business/competitive

strategy 229

10.1 Introduction 229

10.2 Industry analysis 232

10.3 Competitor analysis 236

10.4 Competitive strategy 239

10.5 Resource-based view of the firm 240

10.6 Dynamic capabilities 244

10.7 Move and counter move 248

10.8 Summary: how economic analysis can contribute

to the formulation of competitive strategies 258

Questions 259

Note 259

11 Economic contributions to corporate strategy 260

11.1 Introduction 260

11.2 Unrelated diversification 263

11.3 Related diversification 270

11.4 Horizontal multi-nationalization 276

11.5 Vertical integration 279

11.6 Summary 284

Questions 286

Notes 287

12 Evolutionary approaches to organizations 288

12.1 Introduction 288

12.2 Giraffes 288

12.3 Organizations and giraffes 290

12.4 Organizational ecology 293

12.5 An evolutionary theory of economic change 302

12.6 Comparison 307

12.7 The evolution of dynamic capabilities 310

12.8 Further developments 317

12.9 Summary: the evolutionary perspective 323

Questions 325

Notes 327

13 All in the family 328

13.1 Introduction 328

13.2 The basic conceptual framework 328

13.3 Family resemblances 330

13.4 Family differences 333

13.5 Summary: all in the family? 341

13.6 Organizations as complex, adaptive systems 342

Questions 357

Notes 358

Bibliography 359

Index 373

  • Covers Game Theory, Strategy, and Evolution.
  • Packed with empirical results and real world data
  • Builds a step-by-step conceptual framework to explain fundamental economic approaches to organisations.
  • Discusses the 5 different economic approaches to organisations
  • Contains useful learning features: real-life examples, end-of-chapter questions, quotations, diagrams, further reading and study.
  • Wide range of cases with a global link.
  • Assumes no prior knowledge of economics.
  • Clearly written in a concise, informative and student-friendly style.
  • Instructor's Manual with answers to questions, overheads and further reading.

Sytse Douma is professor of business administration at Tilburg University.

Hein Schreuder was executive vice president of corporate strategy and acquistitions at Royal DSM N.V. until 2012. He is honorary professor of business economics at Maastricht University and board member of the Vlerick Business School in Belgium.