Embeddedness and Price Formation in the Corporate Law Market

mation bound to almost all commercial goods or services. Familiar terms such as price discrimination, price wars, price fixing, consumer price indices, price rigidity, shadow prices, price tags, and so on signify the key role of prices in society and how markets can fail if the price-setting mechanism falters. At the level of the firm, pricing is the key means by which rents are appropriated: If a firm sets prices too low, it may fail to capture the profits needed for reinvestment and growth (Zbaracki et al. forthcoming). More than just the sum of money that changes hands in a marketplace, prices enable resource allocation and the comparative valuation of goods and services. The vital importance of prices suggests the need for a sociological understanding of them (Swedberg 1994). Classical sociology focused on the impact of prices on stratification (Marx [1867] 1952; Weber [1921] 1968). Modern sociologists have examined how social relations actively affect prices by reducing exchange uncertainty. This work focuses on how social relations provide information and governance arrangements that are not available through market means and that affect prices by differentiating products and lowering the transactions costs of trade. Baker (1984) showed that the size of commodity traders’networks affected their setting of a market price. Podolny (1993) found that an investment bank’s status is responsible for variation in bond underwriting prices, a relationship that also holds for the prices of wines (Benjamin and Podolny 1999), while Zuckerman (1999) showed that firms that straddled different product categories presented an incoherent economic categorization of the firm to analysts, causing the firm’s share price to drop. Uzzi (1999) found that social attachments and networks between corporate borrowers and bankers enable the flow of nonmarket information and informal governance arrangements that lower loan prices, a model that has also Embeddedness and Price Formation in the Corporate Law Market