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Do Markets Emerge or Are They Created By Firms - Essay Example

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Do markets emerge or are they created by firms? Does ownership matter? Is the global economy converging to one form of capitalism? Mostly, economic analyses are based on the presumption that markets existed from the beginning (Williamson, 1985; Sarasvathy and Dew, 2005)…
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Do Markets Emerge or Are They Created By Firms
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"Do Markets Emerge or Are They Created By Firms"

Download file to see previous pages Whether by accident or design, when a firm appropriately guesses a latent need and develops novel offerings addressing unmet needs, new markets are created. Though innovative firms are not always profitable, new markets add value to society, and firm’s primary target is to capture some part of that value by exploratory strategies (Jacobides, 2003). The various mechanisms through which firms profit from their own activities associated with new product development include product features to attract buyers, price inelastic new markets, substitution of existing products with cheaper products, and development of capabilities for adaptation. Variation causes further variation, and the creation of product categories and process of organizational unbundling results in reduction of transaction costs setting grounds for new markets to be created (Anderson and Gatignon, 2005). Firms also create markets without developing new products through mere marketing and management activities, even for familiar products. For example, creation of outlets in disadvantaged regions creates new markets. The underlying principle to this concept is reducing transaction costs, and converting prospects into buyers (Anderson and Gatignon, 2005). ...
The learning of consumers by using technologies or the change in consumption technology makes it very hard for firms to find or predict new markets on basis of merely abstract demand. Moreover, firms never rely on existing differences in tastes to develop markets, but strive hard to make tastes cohere transforming them into specific artifacts which may not always succeed eventually. Additionally, the arguments supporting creation of new markets through predicting demand are unable to justify the development of certain products and not others. Competition should result in firms converging to same product designs. Instead, there is enormous variation as observed in real markets (Sarasvathy and Dew, 2005). Firms own assets or have control over them, and ownership is the power which allows effective exercise of that control (Grossman and Hart, 1986). The major benefit of ownership is that it allows flexibility over decision-making and firm’s adaptability to changing environments (Madhok, 2006). Ownership is regarded as one of the key variables in determining the performance or outcome of a firm. Research reveals that a positive relationship exists between managerial ownership and performance until a certain threshold level of ownership concentration. Beyond the threshold, performance may decline as managers often take advantage of the shared benefit of control to pursue their own interests and strategies (Neumann and Voetmann, 2003). The performance of firms tends to decline when ownership and control are separated, and increase with competition. However, firms having employee managers usually show better performance than owner managers in various sectors because owner managers inherit estates ...Download file to see next pagesRead More
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