Table of Contents
1. Markets and Organizations............................................................................................4
Object of economics.....................................................................................................................4
Resources........................................................................................................................................................4
Economic problem..........................................................................................................................................5
Optimal allocation...........................................................................................................................................5
Economies of Specialization.........................................................................................................5
Division of labor..............................................................................................................................................5
Specialization..................................................................................................................................................6
Business reality.............................................................................................................................6
Economic infrastructure.................................................................................................................................6
Ideal market....................................................................................................................................................6
Markets and Organizations.............................................................................................................................7
Environment and institutions.........................................................................................................................7
Government....................................................................................................................................................8
Nature of Organizations...............................................................................................................8
Mintzberg: various types of coordinating mechanisms:................................................................................9
Types of Organizations...............................................................................................................11
Plattform Organisation/ Digital platform......................................................................................................13
Informational goods.....................................................................................................................................14
Blended border between market coordination and organizational coordination.......................................14
2. Coordination and Information & Game theory..............................................................15
Underlying condition for informational coordination.................................................................15
Perfect competition......................................................................................................................................15
Different types of goods...............................................................................................................................15
Uncertainty and information gaps..............................................................................................16
The market solution for uncertainty.............................................................................................................16
Information asymmetry..............................................................................................................17
Game theory...............................................................................................................................19
Prisoners Dilemma.....................................................................................................................20
3. Theories of the Firm......................................................................................................26
Goals..........................................................................................................................................26
How to measure the inducement (Anreiz)?.................................................................................................26
4. Agency theory..............................................................................................................29
Principal agent relationship........................................................................................................29
Agency problem:...........................................................................................................................................29
Separation of ownership and control:..........................................................................................................30
Measures to ensure managers do their job.................................................................................................31
Relationship between different firm ownership structures and managerial behaviour.............................31
Firm as solution to moral hazard problems in team production.................................................33
(1) Firm as nexus of contracts (positive agency theory)..............................................................35
The most important contracts......................................................................................................................35
Decision management, decision control, and residual risk bearing.............................................................35
,5. Transaction cost economics..........................................................................................37
How is a transaction governed?..................................................................................................38
Behavioural assumptions: bounded rationality and opportunism..............................................38
The fundamental transformation...............................................................................................40
Digitalization and platforms.......................................................................................................44
Organization forms in the language of transaction cost economics:...........................................44
Unitary form (U-form)..................................................................................................................................47
M-form..........................................................................................................................................................47
Organizational markets:................................................................................................................................48
6. Economic contributions to competitive strategies.........................................................51
Strategies in a multibusiness firm:..............................................................................................52
Process of strategic planning in a multibusiness firm:.................................................................................52
Analyze the environment - industry analysis: SCP.......................................................................................53
Porter’s five forces (Porter 1979)................................................................................................54
Example of Porter’s Five Forces:...................................................................................................................58
Analyze the environment - competitor analysis..........................................................................59
Competitive strategy:.................................................................................................................60
Stickiness of competitive strategies:............................................................................................................60
Formulate competitive strategy:..................................................................................................................60
Assess company strengths and weaknesses - RBV.......................................................................................61
Platform organizations through the lens of RBV.........................................................................62
Dynamic capabilities also have the VRIN features:.....................................................................62
Taking other competitors into account - First mover advantage (read 10.7.7 in book)...............63
Effect of market and technological charges on first-mover advantage.......................................................64
Effect of market and technological changes:...............................................................................................65
But being first does not always guarantee advantages!!!!!!........................................................................66
7. Economic contributions to corporate strategy..............................................................67
Four types of portfolio management strategies:..........................................................................................68
How can corporate HQ add value in an unrelated conglomerate?..............................................71
Related diversification: 6 roles +2...............................................................................................74
Horizontal multinationalization..................................................................................................75
8. Mergers and acquisitions.............................................................................................77
Definitions:.................................................................................................................................77
Types of business combinations:................................................................................................78
Key economic problems in M&As (structure): 3 kinds of problems.............................................78
Solutions:......................................................................................................................................................79
Period of limbo...........................................................................................................................86
Buyer’s solutions to the hidden action problem: 2 categories....................................................87
9. Economic approaches in hybrid forms...........................................................................93
The opening question: How to reach end customers?................................................................93
Example: Coke or Pepsi?...............................................................................................................................93
, Hybrid forms are efficient for intermediate level of asset specificity:.........................................95
Different types of hybrid forms:...................................................................................................................96
Reduction of opportunism in the long-term relationship:...........................................................................97
Trust as the X factor:.....................................................................................................................................97
Joint ventures:............................................................................................................................98
Key drivers for creating a JV:........................................................................................................................99
Strategic alliance (JV) = risk, trust, control.................................................................................................100
Structure a relational contract:.................................................................................................102
Decision of whether Contract or Equity based strategic alliance..............................................103
What coordination mechanisms are used in a franchise?.........................................................108
Theoretical explanations for franchises:...................................................................................109
Two potential problems..............................................................................................................................109
Franchising vs. hierarchy vs. independent companies...............................................................................111
Franchising vs. hierarchy:...........................................................................................................................111
Before entering into a franchise contract: 2 other factors influencing the decision:................................112
Plural form symbiosis:..............................................................................................................113
10. Corporate Governance..............................................................................................114
Separation of ownership and and control: (Agency Problem)...................................................114
Different interests between owners and managers..................................................................115
1) Problem of free cash flow.......................................................................................................................115
2) difference in attitude towards risk.........................................................................................................116
3) Different time horizons...........................................................................................................................116
4) On- the- job consumption......................................................................................................................116
Separation of ownership and control........................................................................................116
Solutions for information asymmetry........................................................................................................117
reducing the information asymmetry between principal and agent:........................................................117
Solutions for conflict of interests/agency problems..................................................................................118
Solutions for agency problems:..................................................................................................................118
Dutch East India Company........................................................................................................121
Organizational solutions for the agency problem: offering managers with incentive contracts 124
Potential concerns with incentive contracts:.............................................................................................126
Factors beyond manager control:..............................................................................................................127
Nomination and election of directors.........................................................................................................131
Market solutions for the agency problem - External monitoring..............................................132
a) by auditing firms/ auditors.....................................................................................................................133
b) by stock analysts.....................................................................................................................................133
c) by debt holders.......................................................................................................................................134
Market for corporate control....................................................................................................134
What is a proxy fight?...............................................................................................................137
Leveraged buyout as an example of market for corporate control...........................................139
Takeover defences by Target company:....................................................................................140
Different corporate governance systems..................................................................................142
Market – orientated systems of corporate governance (anglo American countries)................................142
Network – oriented systems of corporate governance..............................................................................143
Is dispersed ownership the rule or the exception?...................................................................145
, 1. Markets and Organizations
Object of economics
Economics
deals with the (optimal) allocation of scarce resources
- Science of choice
- Efficiency and individual satisfaction (an item is more valuable when it is useful for you)
Resources
assets or services that meet the needs and wants of individuals
4 Types of resources:
Land Natural resources
Labor Human resources
Capital and Entrepreneurship Manmade resources
Information Human resources
MONEY IS NOT A RESOURCE!!!!!!
Human resources
- Intangible Skills or pieces of information that are non-measurable by a company’s
financial system
- They range from different technological to managerial know-hows
1. Markets and Organizations............................................................................................4
Object of economics.....................................................................................................................4
Resources........................................................................................................................................................4
Economic problem..........................................................................................................................................5
Optimal allocation...........................................................................................................................................5
Economies of Specialization.........................................................................................................5
Division of labor..............................................................................................................................................5
Specialization..................................................................................................................................................6
Business reality.............................................................................................................................6
Economic infrastructure.................................................................................................................................6
Ideal market....................................................................................................................................................6
Markets and Organizations.............................................................................................................................7
Environment and institutions.........................................................................................................................7
Government....................................................................................................................................................8
Nature of Organizations...............................................................................................................8
Mintzberg: various types of coordinating mechanisms:................................................................................9
Types of Organizations...............................................................................................................11
Plattform Organisation/ Digital platform......................................................................................................13
Informational goods.....................................................................................................................................14
Blended border between market coordination and organizational coordination.......................................14
2. Coordination and Information & Game theory..............................................................15
Underlying condition for informational coordination.................................................................15
Perfect competition......................................................................................................................................15
Different types of goods...............................................................................................................................15
Uncertainty and information gaps..............................................................................................16
The market solution for uncertainty.............................................................................................................16
Information asymmetry..............................................................................................................17
Game theory...............................................................................................................................19
Prisoners Dilemma.....................................................................................................................20
3. Theories of the Firm......................................................................................................26
Goals..........................................................................................................................................26
How to measure the inducement (Anreiz)?.................................................................................................26
4. Agency theory..............................................................................................................29
Principal agent relationship........................................................................................................29
Agency problem:...........................................................................................................................................29
Separation of ownership and control:..........................................................................................................30
Measures to ensure managers do their job.................................................................................................31
Relationship between different firm ownership structures and managerial behaviour.............................31
Firm as solution to moral hazard problems in team production.................................................33
(1) Firm as nexus of contracts (positive agency theory)..............................................................35
The most important contracts......................................................................................................................35
Decision management, decision control, and residual risk bearing.............................................................35
,5. Transaction cost economics..........................................................................................37
How is a transaction governed?..................................................................................................38
Behavioural assumptions: bounded rationality and opportunism..............................................38
The fundamental transformation...............................................................................................40
Digitalization and platforms.......................................................................................................44
Organization forms in the language of transaction cost economics:...........................................44
Unitary form (U-form)..................................................................................................................................47
M-form..........................................................................................................................................................47
Organizational markets:................................................................................................................................48
6. Economic contributions to competitive strategies.........................................................51
Strategies in a multibusiness firm:..............................................................................................52
Process of strategic planning in a multibusiness firm:.................................................................................52
Analyze the environment - industry analysis: SCP.......................................................................................53
Porter’s five forces (Porter 1979)................................................................................................54
Example of Porter’s Five Forces:...................................................................................................................58
Analyze the environment - competitor analysis..........................................................................59
Competitive strategy:.................................................................................................................60
Stickiness of competitive strategies:............................................................................................................60
Formulate competitive strategy:..................................................................................................................60
Assess company strengths and weaknesses - RBV.......................................................................................61
Platform organizations through the lens of RBV.........................................................................62
Dynamic capabilities also have the VRIN features:.....................................................................62
Taking other competitors into account - First mover advantage (read 10.7.7 in book)...............63
Effect of market and technological charges on first-mover advantage.......................................................64
Effect of market and technological changes:...............................................................................................65
But being first does not always guarantee advantages!!!!!!........................................................................66
7. Economic contributions to corporate strategy..............................................................67
Four types of portfolio management strategies:..........................................................................................68
How can corporate HQ add value in an unrelated conglomerate?..............................................71
Related diversification: 6 roles +2...............................................................................................74
Horizontal multinationalization..................................................................................................75
8. Mergers and acquisitions.............................................................................................77
Definitions:.................................................................................................................................77
Types of business combinations:................................................................................................78
Key economic problems in M&As (structure): 3 kinds of problems.............................................78
Solutions:......................................................................................................................................................79
Period of limbo...........................................................................................................................86
Buyer’s solutions to the hidden action problem: 2 categories....................................................87
9. Economic approaches in hybrid forms...........................................................................93
The opening question: How to reach end customers?................................................................93
Example: Coke or Pepsi?...............................................................................................................................93
, Hybrid forms are efficient for intermediate level of asset specificity:.........................................95
Different types of hybrid forms:...................................................................................................................96
Reduction of opportunism in the long-term relationship:...........................................................................97
Trust as the X factor:.....................................................................................................................................97
Joint ventures:............................................................................................................................98
Key drivers for creating a JV:........................................................................................................................99
Strategic alliance (JV) = risk, trust, control.................................................................................................100
Structure a relational contract:.................................................................................................102
Decision of whether Contract or Equity based strategic alliance..............................................103
What coordination mechanisms are used in a franchise?.........................................................108
Theoretical explanations for franchises:...................................................................................109
Two potential problems..............................................................................................................................109
Franchising vs. hierarchy vs. independent companies...............................................................................111
Franchising vs. hierarchy:...........................................................................................................................111
Before entering into a franchise contract: 2 other factors influencing the decision:................................112
Plural form symbiosis:..............................................................................................................113
10. Corporate Governance..............................................................................................114
Separation of ownership and and control: (Agency Problem)...................................................114
Different interests between owners and managers..................................................................115
1) Problem of free cash flow.......................................................................................................................115
2) difference in attitude towards risk.........................................................................................................116
3) Different time horizons...........................................................................................................................116
4) On- the- job consumption......................................................................................................................116
Separation of ownership and control........................................................................................116
Solutions for information asymmetry........................................................................................................117
reducing the information asymmetry between principal and agent:........................................................117
Solutions for conflict of interests/agency problems..................................................................................118
Solutions for agency problems:..................................................................................................................118
Dutch East India Company........................................................................................................121
Organizational solutions for the agency problem: offering managers with incentive contracts 124
Potential concerns with incentive contracts:.............................................................................................126
Factors beyond manager control:..............................................................................................................127
Nomination and election of directors.........................................................................................................131
Market solutions for the agency problem - External monitoring..............................................132
a) by auditing firms/ auditors.....................................................................................................................133
b) by stock analysts.....................................................................................................................................133
c) by debt holders.......................................................................................................................................134
Market for corporate control....................................................................................................134
What is a proxy fight?...............................................................................................................137
Leveraged buyout as an example of market for corporate control...........................................139
Takeover defences by Target company:....................................................................................140
Different corporate governance systems..................................................................................142
Market – orientated systems of corporate governance (anglo American countries)................................142
Network – oriented systems of corporate governance..............................................................................143
Is dispersed ownership the rule or the exception?...................................................................145
, 1. Markets and Organizations
Object of economics
Economics
deals with the (optimal) allocation of scarce resources
- Science of choice
- Efficiency and individual satisfaction (an item is more valuable when it is useful for you)
Resources
assets or services that meet the needs and wants of individuals
4 Types of resources:
Land Natural resources
Labor Human resources
Capital and Entrepreneurship Manmade resources
Information Human resources
MONEY IS NOT A RESOURCE!!!!!!
Human resources
- Intangible Skills or pieces of information that are non-measurable by a company’s
financial system
- They range from different technological to managerial know-hows
