Arnold Kling  

Explaining Oliver Williamson

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I think Alex Tabarrok is the most helpful of the bloggers thus far. Lynne Kiesling is helpful on Williamson as well as on Elinor Ostrom, the other new Nobel Laureate.

I think of Oliver Williamson in terms of the 1980's personal computer industry, featuring IBM, Microsoft, and Apple. Apple integrated the hardware and operating system. IBM and Microsoft had an arms-length relationship.

From Williamson's perspective, Apple needed a software company to make a strategic investment in developing an operating system for its hardware. Not having a long-term track record, the only way it could do this was to integrate with the software company. IBM, on the other hand, was offering a brand name with a strong track record--it was reasonable for a software company to figure that it could gain from a strategic alliance with IBM. Therefore, IBM was able to outsource its operating system to the best bid that it could find in the market. Microsoft was able to hedge its bet on IBM by having a license to sell to other manufacturers. IBM thought that its bet with Microsoft was hedged by the fact that IBM could build its own operating system. However, by the time IBM got around to building its own operating system, it no longer had much marketing leverage.


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COMMENTS (3 to date)
robert arbon writes:

Just saw this sentence from a paper (can't remember who linked to it!) by Williamson that made me think of your 'Easy to fix/hard to break' dichotomy for financial regulation:

'More attention to desiging processes that have good adaptive properties (and less to concentration all of the action in the ex ante incentive alignment stage) is thus one of the central lessons of the economics of governance'

First time I've read any of his work and I must say I'm looking forward to his book now.

Chris E writes:

Do you think Hernando De Soto has a chance to win the Nobel Prize since it seems that non-mathematical economists are being considered?

Bo Zimmerman writes:

I apologize beforehand, I know that this is neither here nor there, but if I have to listen to another economist sum up the birth of the home computer industry without using the word "Commodore", or, heck "Tandy" I'm just going to go nuts.

For heaven's sake, Guiness still lists the C64 as the best selling home computer of all time. In the late 70s, early 80s, IBM was irrelevant to the home computer market, and Apple's biggest success was the education (local government) market. Commodore had driven Atari, Tandy, and half a dozen other companys right out of low end home computing, before their eventual decline in the mid/late 80s to the new IBM clone makers.

At the end of the day, it's no mistake that Apple was using *Commodore* chips in their computers, that Commodore beat them to market with a fully assembled computer for mass consumption, and that Tandy only got in the game after refusing Commodore's offer to retail their computers for them.

Home Computing did NOT begin with Apple and IBM. It only ended up that way.

Maybe history is written by the victors, but that doesn't mean smart men should repeat it.

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