1. Collis & Montgomery, Chapter 5 By Dwi Joko Pramudito Song Young Kang

2.  Many corporation still expanding, entering new businesses and markets, and becoming larger and more complex  Others are reducing the scale and the scope of activities  The chapter addresses limit to the scope of the firm  Organizational Economics

3.  Is the firm possesses resources that provide a competitive advantage in business  Yes  consider of competing in the business  No  should not be active in the business

4.  Why should a particular business or activity be performed inside the firm?  The choice lies between The Market or The Hierarchy  Corporate hierarchy will be efficient when it can be shown to be the organizational arrangement that minimizes the sum of production and governance cost

5.  Benefit of the Market:  More efficient at information processing  Incentives  Cost of the market  Transaction cost theory  Market Failure: ▪ Opportunism ▪ Asset specificity ▪ Uncertainty ▪ High Frequency

6.  Benefit of the Hierarchy:  One party has authority over anyone else  Unified ownership reduce the pursuit of local goals  When intense coordination is needed among parties to a transaction  Cost of the Hierarchy:  Beureaucracy  Agency Cost

7. MarketHierarchy Benefit Informational Efficiency Authority High-powered Incentives Coordination Cost Transaction CostBureaucracy Market PowerAgency Cost

10.  Bias to the Market  Activities should be performed outside rather than inside the firm  The production cost benefit that independent suppliers can exploit and the governance cost benefit of high-powered incentives and decentralized information processing

11.  A Decision Process 1. Disaggregate the Industry Value Chain 2. Competitive Advantage 3. Market Failure 4. Need for Coordination 5. Importance of Incentives