In the last blog, we discussed about the reduction of "transaction cost" if there is a trust that is built between the firms. The term "transaction cost" has been discussed multiple times thus far, and it would be apt if we describe the term - starting from this blog we begin a discussion on "organizational economics" that would continue over the next few blogs. The primary resource for our discussion over the next few blogs would be a chapter from the book "Handbook or organizational studies - S R Clegg, C hardy and W R Nords from Sage publications". In this blog, we look at the understanding the nature of organizational economics since the term is pretty new to most readers.
Organizational Economics is a type of organizational analysis that generally relies on equilibrium analysis, assumes profit maximizing managers and uses abstract assumptions and models, but having said these we always would find exceptions to this. The real underlying commonalities in all the theories of organizational economics are
1. The interest in structure, functioning and implication of firms
2. Relation between competition and organizations
3. The probability of organizational survival
Having said that competition is a subject matter of interest, it doesn’t preclude discussion on cooperation within and between firms. For the sake of study, literature on organizational economics has been classified into following streams
1. Transaction cost economics
2. Agency theory
3. Strategic management theory
4. Cooperative organizational economics
We shall discuss these 4 streams and the theories in them over the next few blogs.