Williamson's Markets and Hierarchies

Williamson's Markets and Hierarchies theory explores how organizations choose different structures to coordinate activities efficiently. Markets—think of buying and selling goods—rely on contracts, where transactions are straightforward and governed by market prices. Hierarchies, like corporations, involve a centralized authority or management controlling resources and decision-making. Williamson suggests that transaction costs (costs of negotiating, enforcing contracts, or managing relationships) influence whether activities are best handled through markets or hierarchies. In simple terms, when transactions are complex or uncertain, organizations prefer hierarchical structures; for simpler, predictable exchanges, markets are more efficient.