What's So New About the New Economy? -- Brian Silverman -- Rotman School -- Lifelong Learning, June 7, 2002, 11:20 a.m.
What's So New about the New Economy? Waves of Innovation and Their Effect on Strategy, Organization and Competitive Advantage
Brian Silverman, Rotman School
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Introduction by Sridhar Moorthy
Associate professor of strategy
Back from HBS
Ph.D. from Berkeley, then assistant professor at U. of Toronto.
Wanted to go to Boston, taught at HBS for 3 years
Undergrad degree from Harvard in economics, MBA from MIT
At Berkeley, studied under Oliver Williamson
Has won a lot of teaching awards.
Flew back last night, and was detained at the border.
Otherwise would have had more slides.
Selfish: could present something fairly thought-out, or could present something still percolate, and elicit.
Today, presenting things that are being formed.
One slide missing from the handouts.
Definition of transaction costs.
Transaction costs: costs of exchange, frictions in the marketplace
Doing a task, want to exchange with people who are doing a different task.
Could have different incentives.
Don't necessarily care about the other person.
Firms formed because of transaction costs, sometimes because it's easier to do than inside the market.
Suppose a river, with a widget factory, but big city is downstream.
Widget factory would like a rail spur built from the factory to the city.
If you're the railroad, could sign upfront.
Huge fixed cost, but small marginal cost.
But then if the factory decides that he will only pay cheap, ongoing, then need to write a contract.
Price depends on:
Reputation, based on trust and "hostage"
Are there safeguards in a court of law?
Depends on efficacy of enforcement, which depends on law, and transparency of information.
Transaction costs can influence other ways
e.g. textile producer weaves, then have distribution.
Putting out system: drop off some threads to a woman and child at home.
Contracts with people in the big city.
All marginal costs
If a dispute, easy to find a new labourer.
Innovation: capital-intensive production
But who's going to buy the equipment?
Worker won't want to put it out.
Producer will tend to buy the equipment, and turn the labourer into an employee.
Since high fixed cost, the producer wants to keep it utilized.
Then may get change in forward chain, into distribution.
Thus, transaction costs can influence industry structure.
Never quite persuaded by irrational exuberance, nor pessimism.
Idea was: new opportunities, "blown to bits", old rules don't work anymore.
Professor at Carnegie Mellon changed title from Professor of Strategy to Professor New Economy (and may change back).