Williamson's Analysis of the Corporation
ENCYCLOPEDIA OF POLITICAL ECONOMY, Phillip O'Hara, ed., Routledge Publishing, pp. 1251-1254, 2000
Posted: 22 Jan 2010
Date Written: 2000
Williamson's analysis of the corporation examines the rationale for the existence of, and changes in the size of, the firm in the market environment. While the price mechanism is considered the most efficient means of coordinating transactions, there are transaction costs associated with the discovery of the relevant prices and in negotiating separate contracts for each exchange. By shifting some transactions into the firm, costs are reduced. Corporate integration (or 'bigness') is also a product of transaction cost economising. Even if mergers cannot be justified by savings through economies of scale they can be justified through transaction cost reasons. It is assumed that corporate bigness does not affect the extent of competitive pressures on the firm. However larger corporations do reduce competitiveness and can also generate X-inefficiency. The economic theory presented by Williamson can enrich our understanding of the development of the firm, however it can not prove that mergers necessarily generate net economic benefits.
Keywords: Williamson, Corporation, Firm, Market environment, Prices, Transaction costs, X-inefficiency
JEL Classification: K22
Suggested Citation: Suggested Citation