Relational contracts—informal agreements sustained by reputational concerns—are prevalent both within and between firms. This paper develops repeated-game models of relational contracts that show how and why relational contracts within firms (vertical integration) differ from those between (non-integration). We show that integration affects the parties ’ temptations to renege on relational contracts, and hence affects the best relational contract the parties can sustain. In addition, our results offer new explanations for why a widely varying supply price often leads to vertical integration, and why incentives in firms are “lower powered ” than in markets. Finally, our results have implications for non-standard organizations (such as joint ventures, alliances, and networks) and the role of management within and between firms.

Employees are motivated intrinsically as well as extrinsically. Intrinsic motivation is crucial when tacit knowledge in and between teams must be transferred. Organizational forms enable different kinds of motivation and have different capacities to generate and transfer tacit knowledge. Since knowledge generation and transfer are essential for a firm s sustainable competitive advantage, we ask specifically what kinds of motivation are needed to generate and transfer tacit knowledge, as opposed to explicit knowledge.

This paper proposes that transaction costs and capabilities are fundamentally intertwined in the determination of vertical scope, and identifies the key mechanisms of their co-evolution. Specifically, we argue that capability differences are a necessary condition for vertical specialization; and that transaction cost reductions only lead to specialization when capabilities along the value chain are heterogeneous. Furthermore, we argue that there are four evolutionary mechanisms that shape vertical scope over time. First, the selection process, itself driven by capability differences, dynamically shapes vertical scope; second, transaction costs are endogenously changed by firms that try to reshape the transactional environment to increase their profit and market share; third, changes in vertical scope affect the nature of the capability development process, i.e., the way in which firms improve their operations over time; and finally, the changes in the capability development process reshape the capability pool in the industry, changing the roster of qualified participants. These dynamics of capability and transaction cost co-evolution are illustrated through two contrasting examples: the mortgage banking industry in the United States, which shows the shift from integrated to disintegrated production; and the Swiss watch-manufacturing industry, which went from disintegration to integration. Copyright © 2005 John Wiley & Sons,

The tacit assumption that increased product modularity is associated with advantageous increases in organizational modularity underlies much of the literature on modularity. Previous empirical investigations of this assumption, few in number, have faced numerous confounding factors and generated conflicting results. I build a causal model for the relationship between product and organizational modularity, which I test using a distinctive empirical setting that controls for confounding factors present in previous studies. I find support for only part of the assumed relationship, showing that modularity is a more multi−faceted concept than previously recognized. In particular, increased product modularity enhances reconfigurability of organizations more quickly than it allows firms to move activities out of hierarchy. The paper contributes to the emerging stream of research that focuses on the previously under−appreciated costs of designing and maintaining a modular organization.

This paper presents a synthetic framework identifying the central drivers of start-up commercialization strategy and the implications of these drivers for industrial dynamics. We link strategy to the commercialization environment – the microeconomic and strategic conditions facing a firm that is translating an “idea ” into a value proposition for customers. The framework addresses why technology entrepreneurs in some environments undermine established firms, while others cooperate with incumbents and reinforce existing market power. Our analysis suggests that competitive interaction between start-up innovators and established firms depends on the presence or absence of a “market for ideas. ” By focusing on the operating requirements, efficiency, and institutions associated with markets for ideas, this framework holds several implications for the management of high-technology entrepreneurial firms.

Abstract. Large firms tend to overlap their boundaries in unstable environments and create strategic alliances and collaborations with their suppliers, customers and partners. In the automobile sector, firms are extended enterprises continuously innovating and creating new products through their dynamic capabilities. A large automotive company seeks to leverage its relationships with its customers and suppliers through networks creation. More specifically, partnering with the organizations, constituting a Dealers ’ network- providing after sales services to customers as assisting, selling, and repairing cars. The dealers ’ network consists of small and medium organizations that represent the automotive company and are the intermediary among it and its customers. Through this research, we are elaborating a model representing the collaborative relationship among the automotive company and its dealers ’ network that leads to knowledge creation and sharing about the automobiles components and services of this extended enterprise. We present a model illustrating the dealers ’ network organization and its interaction with the large firm. The collaborative knowledge network (CKN) contributes to the sustainability of the new product development (NPD) process of the automotive company. 1

Interorganizational systems (IOS) can play an important role in stabilising the relationship between firms. More recent evidence suggests that such systems can also facilitate new collaboration between firms in strategic areas. However, successful inter-firm collaboration depends not only on the technological support of IOS, but also a wide range of other, non-technological factors. Using recent evidence gathered from six intensive case studies and the result of a survey in the UK, this paper illustrates some new strategic collaborations between firms, and examines the role of IOS in these processes. In particular, the paper will conceptualise the main technological and non-technological barriers to the success of IOS in a three-layered model, and discuss some key lessons emerging from the study. Three themes for further research will also be highlighted.

When two or more separate products bear a functional complementarity to one another, but also pose hazards related to compatibility and joint performance to consumers wishing to exploit such complementarity, upstream bundling by producers can function as a means of exploiting demand that would otherwise remain latent. The specific organizational form that a bundling arrangement takes- and its corresponding governance structure- depends on the distribution of capabilities among firms and the amount of time during which the window of opportunity for earning rents is expected to remain open. Under some circumstances, inter-firm collaboration is required to provide the bundle. Firms engaged in such collaboration must undertake “support ” transactions related to billing, marketing and especially guaranteeing the functional complementarity customers want, as well as customer support and product repair. "Support " transactions differ from "core " transactions. The latter are those traditionally perceived as required to produce the product in question. Support transactions create transaction costs of their own, so that the market may turn to be a costly means of governing collaborative arrangements undertaken for bundling purposes, even when the "core " transactions could be normally undertaken through the market. The telecommunications service sector provides an illustration.-1-

We examine the evolution of vertical specialization in three industries: chemicals, computers, and semiconductors. Vertical specialization is the restructuring of industry-wide value chains, such that different stages of the development, production, and marketing processes are controlled by different firms, rather than being vertically integrated within the boundaries of individual firms. In some cases, vertical specialization may span international boundaries and is associated with complex international production networks. After decades of vertical specialization, firms in the chemical industry appears to be re-integrating stages of the value chain. By contrast, the semiconductor and computer industries have experienced significant vertical specialization during the past ten years. We examine how and why these contrasting trends in vertical specialization have coevolved with industry maturation and decline, and underscore the importance and role of both industry factors and business strategies necessary for industries to become more specialized. We also consider the effects of vertical specialization on the sources of innovation and the geographic redistribution of production and other activities. We conclude that the evolution of vertical specialization in these three industries has both reflected and influenced the strategies of leading firms, while also displaying industry- specific characteristics that are rooted in their different technological and market characteristics.

Social capital is seen here as part of the overall resource base of a firm. One part of social capital is positional advantage in a network. It is established on the basis of relational competence. Third parties can help in the development of social capital by offering their relational competence, in playing one or more of six roles: the roles of the go-between. Transaction cost economics recognizes that in an inter-firm relation the inclusion of a third party can economize on the setting up and operation of a governance mechanism ('trilateral governance'). The third party acts as a go-between in monitoring and controlling compliance to agreements, thus eliminating the need of intricate and costly forms of 'bilateral governance.' A second role of the go-between is to serve as a repository of hostages. A third role is to help in the judgement of the value that partners have for each other, i.e. to solve the 'revelation problem.' A fourth is to serve as a filter against spill-over. A fifth is to mediate in the building of trust. A sixth is to act as a boundary spanner: to offer a link between an established network and outside sources of innovation, while maintaining the integrity of the network. These roles are especially important in relations that are aimed at innovation. By performing these roles, the third party also increases the flexibility of networks of firms. In sum, third parties may form an important part of the social capital that supports networks of firms. The analysis opens opportunities, or new perspectives for fulfilment of their roles, to governmental agencies, such as innovation transfer agencies, municipalities or provinces, and market agencies, such as banks, and suggests that a new market is opening up for professional go-betweens.