Explaining Oliver Williamson
By Arnold Kling
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.