Corporate Control and Business Behavior

Oliver Williamson's Corporate Control and Business Behavior is an important contribution to the old but ever-lively examination of how and how effectively competition regulates economic activity. Though he speaks in mathematical language, and addresses himself primarily to economists and theorists of organization and management, Professor Williamson has a broader message for all those concerned with the public policy of competition. Corporate Control examines how the internal organizational arrangements of business firms affect the efficiency of their operations. It begins with the familiar proposition that the structures of many important markets in our economy are not such as obviously enforce competitive behavior. Large size in relation to markets, large absolute size, legal limitations on entry, and other kinds of restrictive regulation certainly raise the question of the degree to which the thousand or so largest firms in our economy that together produce a major part of total output are compelled by market forces to approximate the efficient behavior of the profit-maximizing competitor of economic theory. Viewed from the inside, all these firms are large enough to require a complex, multi-layer, hierarchical structure of managerial control. For firms in this universe, Professor Williamson analyzes the extent to which the character of internal organization reinforces or substitutes for market forces in pushing the firm toward efficient, profit-maximizing behavior. He treats the questions almost entirely in theoretical terms, using certain simple basic concepts of the theory of organizations as tools for examining the effect of organizational structure on both the firm's definition of goals and its effectiveness in achieving them. The analysis investigates the properties of two types of organization: U-form (unitary) and M-form (multi-divisional), although the author recognizes that some complex firms-which he terms freeform-are really neither one nor the other. The U-form firm is one that is organized along functional lines, with executives immediately below the chief executive as heads of departments; say, for a typical manufacturing firm, manufacturing, marketing, engineering and research, and finance. The top management of such a firm consists essentially of the chief executive and his cabinet of functional vice t Director, Institute for Advanced Study. A.B. 1940, University of Pennsylvania;