Explain how high transaction costs would push an industry away ...

[Kikoku]

Explain how high transaction costs would push an industry away from a market economic structure and toward a hierarchical structure.

Question 2

Provide one example of an industry that operates using a network economic structure today and explain why it functions better than it would if structured as either a market or a hierarchy.

[janeli1]

Answer to Question 1

The late Nobel laureate Ronald Coase reasoned that when transaction costs were high, businesspeople would form organizations to replace market-negotiated transactions. These organizations would be hierarchical and would include strong supervision and worker-monitoring elements.

Answer to Question 2

In a network economic structure, companies coordinate their strategies, resources, and skill sets by forming long-term, stable relationships with other companies and individuals based on shared purposes. Network organizations are particularly well suited to technology industries that are information intensive.

In a hierarchically structured business environment, these types of strategic alliances would not last very long because the larger strategic partners would buy out the smaller partners and form a larger single company.

[Kikoku]

Correct answers!

[janeli1]

Great! Please up vote