Digital Platforms and the Nature of the Firm

Abstract:

Digital platforms turn traditional approaches of the firm, which relied on the wage relation to explain the major difference between firm and market, upside down and underline the advantages of coordination through organization over coordination through market. This study aims to propose a definition of the firm able to integrate, besides the integrated firm, also hybrid forms such as networks of subcontractor/subcontracting firms as well as atypical forms such as digital platforms. By reactivating the firm-boundary problem, this article suggests putting valorization by labor at the heart of the firm’s decisions concerning integration. It suggests therefore a general definition of the firm as a techno-institutional center of capital valorization, provided that firms make profits by means of the appropriation of labor incorporated into their (productive, structural, intellectual) capital through institutional arrangements. By stressing the relation of production between the owners of the means of production and the direct producers, the approach of the firm supported here should allow to cover the different existing models of the firm, from the classical firm to hybrid models, around which the boundary debate has revolved, to digital platforms.

Keywords::

• digital platforms
• firm theory
• boundaries of the firm
• transaction cost economics
• property rights theory
• resource-based theory of the firm
• hybrid models

JEL Classification Codes::

• L14
• L24
• L25
• L62
• O30

Notes

¹ Jacques Houssiaux is a French industrial economist who is largely unknown even in France, though he is maybe the first to have theorized the concept of quasi-integration.

² The fruitfulness which TCE has found in hybrid models comes exclusively from the fact that they use formal mechanisms of market exchange within one and only one global production process (i.e., within a single value chain). The empirical examples that Williamson cites to illustrate the scope of TCE shows indeed how the productive logic subordinates the logic of transaction costs in the inter- and intra-firm relationships. Williamson himself admits that most of vertical integration downstream of distribution falls within technical requirements and know-how: “Integration into final sales and service is mainly observed for consumer and producer durables where considerable knowledge is imparted at point of sale and specialized follow-on service is required” (Williamson 1985, 114). Notwithstanding the doubts cast on the Fisher Body-GM case study (Coase 2006), the fact that GM bought Fisher Body in 1926 because it did not meet the new requirements of the firm—such as the proximity of the site—leads Williamson to a similar conclusion: “To be sure, transaction cost reasoning does not predict this sequence in detail” (Williamson 1985, 115). About Gordon Walker and David Weber who did a study on Ford and GM suppliers: “Although they interpret their results as ‘mixed’ in transaction cost terms and attribute most of the explanatory power to ‘comparative production costs,’ they acknowledged that this may be due to ‘limitations in both the data and the model for which subsequent work is indicated’” (Williamson 1985, 116). And he adds: “Further effort to plumb the factors that are responsible for comparative production cost differences between buyer and supplier will, I submit, disclose added transaction cost features” (1985, 116). Concerning the integration of a bauxite refinery by steel enterprises, Williamson here again admits that it was decided “because of asset specificity of both physical plant and site specificity kinds,” and that it was “reinforced by information asymmetry considerations” (Williamson 1985, 119). Furthermore, Williamson cites cases of integration that ought to be considered as mistakes from the viewpoint of transaction costs. Without any supporting evidence, he “conjecture[s]” that they “have mainly been abandoned as renewal decisions have presented themselves” (Williamson 1985, 119). It is true that, in the meantime, numerous empirical studies seem to have confirmed Williamson’s assumptions concerning the trade-off between making and buying (Masten 1996; Shelanski and Klein 1995). However, in an article gathering together most of the case studies illustrating “the empirical success story of the TCE” (Williamson 2000, 607), the authors acknowledge that the quasi-firm studied by Eccles (1981) seems to be an exception to the rule that integration choice increases with asset specificity and conclude that “TCE may assign too much attention to asset specificity for the integration decision” (Shelanski and Klein 1995, 346).

Additional information

Notes on contributors

Laurent Baronian

Laurent Baronian is associate professor at the University of Sorbonne Paris Nord. He has published articles in history of economic thought, labor economics and money and finance. He published a book entitled Marx and Living Labour (Routledge, 2013) among others. His current research is on knowledge management, financialization of corporate governance, and boundaries of the firm.