David J. Teece

Towards an economic theory of the multiproduct firm

This paper outlines a theory of the multiproduct firm. Important building blocks include excess capacity and its creation, market imperfections, and the peculiarities of organizational knowledge, including its fungible and taut character. A framework is adopted in which profit seeking firms are seen to diversify in order to avoid the high transactions costs associated with using various markets to trade the services of various specialized assets. Neoclassical explanations of the multiproduct firm are shown to be seriously deficient.

ECONOMIES OF SCOPE AND THE SCOPE OF THE ENTERPRISE

Abstract This paper examines elements of an efficiency-based theory of the multiproduct firm. The theoretical framework developed by Williamson to explain vertical integration is extended to explain diversification. The proposition is advanced that a cost function displaying economies of scope has no direct implications for the scope of the business enterprise. However, if economies of scope are based upon the common and recurrent use of proprietary knowhow or the common and recurrent use of a specialized and indivisible physical asset, then multiproduct enterprise (diversification) is an efficient way of organizing economic activity. These propositions are first developed in a general context and then examined in the context of diversification in the U.S. Petroleum industry.

Technology Transfer by Multinational Firms: The Resource Cost of Transferring Technological Know-How

AbstractThe following sections are included:IntroductionTechnology Transfer and the Production of KnowledgeThe SampleDefinition of Technology Transfer CostsTransfer Costs: Data and HypothesesThe Level of Transfer CostsTechnology/Transferor CharacteristicsTransferee and Host Country CharacteristicsDeterminants of the Cost of International Technology Transfer: Tests and ResultsThe ModelStatistical Tests: Phase IStatistical Tests: Phase IIDefferences between International and Domestic Technology TransferConclusionReferences

Competition, cooperation, and innovation: Organizational arrangements for regimes of rapid technological progress

Abstract Discussions of the link between firm size and innovation are outmoded because the boundaries of the firm have become fuzzy in recent decades. Strategic alliances — constellations of bilateral agreements among firms — are increasingly necessary to support innovative activities. Such alliances can facilitate complex coordination beyond what the price system can accomplish, while avoiding the dysfunctional properties sometimes associated with hierarchy. Antitrust law and competition policy need to recognize that these new organizational forms are often the functional antithesis of cartels, though they may have certain structural similarities. A more complete understanding of bilateral contracts and agreements ought to reveal when and how cooperation can support rather than impede innovation and competition.

Understanding corporate coherence: Theory and evidence

Abstract Multiproduct firms are perceived to be coherent in their scope, yet there is no strong theoretical foundations to explain coherence in modern industrial organization theory. This paper shows that as U.S. manufacturing firms grow more diverse, they maintain a constant level of coherence between neighboring activities. This finding runs counter to the idea that firms with many activities are generally more ‘incoherent’. A framework is then presented which appeals to the nature of enterprise learning, path dependencies, and the nature of the selection environment to explain the ubiquity of coherent diversifiers.

Strategies for Managing Knowledge Assets: the Role of Firm Structure and Industrial Context

Abstract In the new economy, the sustainable competitive advantage of business firms flows from the creation, ownership, protection and use of difficult-to-imitate commercial and industrial knowledge assets. Such assets include tacit and codified know-how, both technical and organisational, whether or not protected by the instruments of intellectual property such as trade secrets, copyrights and patents. Competitive advantage undergirded by such assets can be sustainable to the extent to which it is transferable and useable inside the firm, but difficult for outsiders to access and/or recreate. Knowledge management can be used to describe the panoply of procedures and techniques used to get the most from a firm’s knowledge assets. Information technology can assist knowledge management, but knowledge management involves much more than the astute use of IT tools. In particular, knowledge management requires the development of dynamic capabilities… the ability to sense and then seize opportunities quickly and proficiently. This is especially so in environments characterised by increasing returns, irrespective of the appropriability regime. Companies slow to respond to the new reality will be severely handicapped.

Supplier switching costs and vertical integration in the automobile industry

This article tests a transactions cost theory of vertical integration with data from the U.S. automobile industry. Existing theory is first refined to take into account industrial know-how and the cost of transferring such know-how. A testable model is then developed, which is estimated by using probit techniques. The results support the view that transactions cost considerations surrounding the development and deepening of human skills have important ramifications for delineating efficient organizational boundaries.

Firm organization, industrial structure, and technological innovation

Abstract The formal and informal structures of firms and their external linkages have an important bearing on the rate and direction of innovation. This paper explores the properties of different types of firms with respect to the generation of new technology. Various archetypes are recognized and an effort is made to match organization structure to the type of innovation. The framework is relevant to technology and competition policy as it broadens the framework economists use to identify environments that assist innovation.

TRANSACTIONS COST ECONOMICS AND THE MULTINATIONAL ENTERPRISE An Assessment

Abstract This paper applies transactions cost principles to the multinational enterprise in order to ascertain its distinctive properties as a mode of economic organization. The analysis helps identify just when and where contractual alternatives to the multinational firm are likely to be viable. This turns out to depend upon the nature of the technology, the regime of appropriability within which the firm operates, and the characteristics of the markets in question. Transactions cost analysis is also extended to the multinational enterprise-host country relationship. Implications for management and public policy are derived.

When is virtual virtuous?: organizing for innovation

AbstractThe following sections are included:IntroductionWhats Special about Virtual?Types of InnovationThe Case of Industry StandardsThe IBM PC: Virtual Successor or Failure?The Virtuous VirtualsChoosing the Right Organizational DesignScale and Scope