A Critical Appraisal of Corporate Bigness and the Transactions Cost Economizing Paradigm

HANDBOOK ON BEHAVIORAL ECONOMICS 2A, Roger Frantz, ed., JBI Press, pp. 217-232, 1990

Posted: 26 Jan 2010

Date Written: 1990

Abstract

Williamson's analysis of the corporation differs from traditional economics in that integration can be economically beneficial to society in ways other than economies of scale. He argues that integration can result in, or be a product of, transaction cost economizing on the part of the firm that results in a reduction in unit costs. Even if mergers cannot be justified by savings through economies of scale they can be justified through transaction cost reasons. This paper seeks to determine to what extent these modifications allow us to argue on a theoretical level that integrating is economically beneficial to society and introduces the concept of X-efficiency which weakens the theoretical base of his work. The affects of legal constraints are also examined and it is shown that under some legal constraints cost-minimizing integration can be inefficient. Williamson's theoretical framework does not and cannot predict that integration yields net reductions in economic costs. Integration will only be efficient if the cost savings outweigh the cost in allocative and X-inefficiency, which can not be determined through theoretical means.

Keywords: Williamson, Corporation, Transaction Costs, Economic of Scale, Integration, X-efficiency

JEL Classification: L16, L52

Suggested Citation

Altman, Morris, A Critical Appraisal of Corporate Bigness and the Transactions Cost Economizing Paradigm (1990). HANDBOOK ON BEHAVIORAL ECONOMICS 2A, Roger Frantz, ed., JBI Press, pp. 217-232, 1990. Available at SSRN: https://ssrn.com/abstract=1542260

Morris Altman (Contact Author)

University of Newcastle ( email )

University Drive
Callaghan, NSW 2308
Australia

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