Peer groups and simple hierarchies: Concluding Remarks

The simple (or single stage) hierarchies that have been discussed in this chapter will serve as the principal building blocks for the assembly of a complex (multistage) hierarchy in subsequent chapters. As might be anti- cipated, there are striking parallels between the reasons for workers to be joined in simple hierarchies and the decision to merge simple hierarchies into a multistage hierarchy rather than mediate the transactions between them by market means. In particular, the same transactional factors which impede autonomous contracting between individuals also impede market exchange between technologically separable work groups. Vertical integration is accordingly to be understood mainly as an internal organizational response to the frictions of intermediate product markets, in which bounded rationality and opportunism are again prominently featured, while conglomerate organization is interpreted as a response to (remediable) failures in the capital market, in which these very same human factors appear, albeit that the context differs.

Source: Williamson Oliver E. (1975), Markets and hierarchies: Analysis and antitrust implications, A Study in the Economics of Internal Organization, The Free Press.

Leave a Reply

Your email address will not be published. Required fields are marked *