7 Myths About Marketing in Economic Downturns

In an ideal world, marketing activity would be self supporting, always pay back multi-fold what it costs to execute, and be effective in reaching every potential buyer in the appropriate sector all the time. But in the world where the sky is blue, marketing activities are driven by several factors, including perceptions of the company and the head marketer there, economic forces that drive consumer behavior of all types and factors beyond your control.
As a result of these factors, marketing budgets are at the mercy of the reactions of the company to these perceptions. Many of these perceptions are flawed, skewed, marred by history, personal experiences of senior management, and most have no historical precedent or foundation.
Myth #1 - "Our brand is strong enough not to need support for the duration of the downturn."
Fact: Few brands are strong enough to survive without advertising, product promotion and customer service support. Brands are like delicate houseplants - they need attention, support, bolstering, and polishing, (the marketing equivalent of nutrients, light and water) - or they will wither and shrivel to a shadow of their former self. This is not a position you want your corporate brand to be in when the growth engine for the economy revs back up.
Myth #2 - "If we cut back on marketing spending, we can use the money for other things internally, and increase the budget when things get better."
Fact: Studies have shown that once that budget gets cut, it takes a herculean effort and a strong internal champion to boost it back to its former levels, and even if it does increase, there are much stronger conditions of ROI attached to its implementation. Once those funds are allocated elsewhere, they tend to stay there - after all, that other department doesn't want to give them up either.
Myth #3 - "Nobody's buying anything, advertising and promotions are a waste of money."
Fact: Many studies conducted by prestigious business publications and university think tanks have come to the same conclusion based on the data they gathered on U.S. and in some cases global companies: Those that reduce their presence in their key service markets are in a far worse position in terms of profitability, market share and market competitive presence when the downturn eases and profitability growth returns than those that maintain their marketing activity levels. Those companies that are so bold as to increase marketing activity stand a great chance of taking market share from their less aggressive competitors and can rule the category if the downturn lasts long enough.
Myth #4 - "We can cut back [on marketing] now, and then ramp up quickly when things get better."
Fact: This strategy has proven disastrous time and again, especially for companies that have inefficiencies inherent in their design, or product delivery channel. That inefficiency won't allow them to "ramp up quickly", since by that very inefficiency they will effectively always be "late" when timing the market - they are not market leaders but laggards, and thus the ramp-up activity gets started late relative to the buying cycle, and their more nimble competitors have already beaten them to the punch.
Myth #5 - "We should examine what's working for us, and cut out everything else."
Fact: This is not really a myth, but a knee-jerk reaction to a short-term slump in sales gross. Good marketing departments should be doing exactly that on a perpetual basis, not just when times are tougher. Why would any marketer worth their pay continue programs that didn't work, effectively dragging down performance across the board and wasting money.
In addition, there should be metrics built into any campaign so that there is a way to "take the pulse" of its success, and mid-course correction is possible to boost effectiveness and increase ROI on a continual basis. Further, in some channels, there is a cumulative effect that blurs perceptions of what's working and what's not - interdependencies exist between channels that are not planned or scheduled but that live in the customer's mind and trigger sales inadvertently. Cutting out what can't be measured accurately hampers this effect, dragging down results with no apparent reason.
Myth #6 - "Marketing spends more money than any other department, they have the most room to cut budget."
Fact: While spending may be a measure of power in some corporate structures, at least informally, return is really what counts when its budget review time. Marketing is one of the few departments that can actually point to contributions they make directly to the bottom line. There is a proven cause-and-effect relationship between sales gross and marketing expenditure for larger and enterprise-size firms. Increased spending in the IT department might yield long-term benefits, but better servers don't often move more product, unless the product is server space. Cutting the marketing budget only reduces the opportunities available to build market share, boost product awareness and memorability in the mind of the consumer, and dampens profitability in the long run.
Myth #7 - "All of our competitors are pulling back advertising and media expenditures to save money, so we should, too."
Fact: This kind of lemming-like sheep thinking can destroy your company! Your Mom knew better than this when you used the excuse "All the other kids are going, why can't I?" and her response was likely something along the lines of "If the other kids jump off the bridge, are you going to jump, too?" Despite being competitors, their financials likely look a bit different from yours, and it's foolish to think that you can mirror their moves and be successful - at best you will be equal! The smart money here is being used to take market share from your more timid competitors, by increasing presence and exposure, and cutting other less-than-mission-critical expenditures for a short period to accomplish it.
Bonus!
Myth #8 - "We should downgrade the quality of our marketing materials, use a cheaper creative agency, and mail out less frequently to save money."
Fact: This set of moves will actually cost you both in the short- and long-term. You might save a very small incremental amount on cheaper paper, shorter, smaller brochures, cheaper handouts, smaller tradeshow giveaways - but the damage you're doing to your brand and the resulting poor reflection on the company as a whole does far more damage than can ever be repaired by spending those few dollars later to try and fix it.
Not to mention shaking the confidence of your customers by giving them a visual representation of how poorly your company is performing! "Gee, they must be in trouble, this looks like cheap junk. Maybe I'd better take my business to the other company that's likely to be around to support their products down the line," is the thought you're promoting by reducing quality in your publicly released materials.
Good design often costs less than bad design, due to fewer creative iterations, fewer miscues, greater effectiveness and higher return. Jumping ship from the agency you're with if they are delivering on dollars spent just to save a little money is fool-hardy. The ramp-up time for a new agency to learn your needs, your products, your style and your brand will just about be exhausted by the time the average recession is over, and it will have cost you more to get the same level of productivity in that time, just in time to reposition for the new economic conditions.
When times get tough, the tough get going in the marketing department, providing the market with visual evidence of your corporate strength, your leadership role in the sector, your expertise in the market, and the supportive strength you offer for your products and services. Don't believe the nay-sayers who want to slash your marketing budget, reduce your headcount and reduce the quality of your materials. Everything you do here reflects on the health of your company, and cutting here shows the most and helps the least.

David Poulos, Chief Consultant at Granite Partners has been offering marketing guidance to firms for over 25 years. Specialties include non-profit marketing and full-scale strategic marketing campaigns. He can be reached at http://www.granite-part.com or 410-472-4570.

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Global Economic Recession, Lay-offs and Its Impact on You - Survival of the Fittest

Introduction
Most of the countries all over the world are going through this phase of economic recession. Many old and big companies have already been brought down on their knees to bite the dust. Many companies as well as countries have become bankrupt or are on the verge of it. Millions and millions of people have lost their jobs. Many people have lost millions and billions of dollars. People in general are scared and fearsome. This is not the first time that the global economy is going through recession and this is also not the last time. There is a pattern involved in it. On an average it is happening after every 8-10 years. This article is an attempt to highlight some of the issues involved and some of the possible solutions.
Dynamics Involved
In our life, there is a special place for money (be it in any currency). Most of the problems that we are facing in our life and day-to-day living are linked with it. Food, shelter, clothes, life-style, education, comforts and etc and etc, each and everything involves money. Money should be revolving; it comes, it goes and it comes back again. It should always change hands or else it is useless. It is this nature of the money that drives the economy of a country, a company or our life. And when you are going through recession, it means no money is coming in. Money is not coming in but yet you need to live and hence there is a need for cost-cutting. But you never know how long the recession will continue and hence more cost cutting. People drive the economy and when there is recession then it is these very people who suffer.
...and then you are laid off. Now what? What will you do? How will you survive? How will you take care of yourself and your family? Earlier there was less money coming in and now there is no money coming in, what will you do?
In such times of global recession when everyone is trying hard to survive and pass through one of the toughest phase of their life, no one thinks about making the profit out of adversity. Everyone is trying to survive and it will be survival of the fittest. Anyone who will be able to pass through this will come out as a stronger entity or person or country. Companies are no exception to this rule. They are also trying hard to survive. With them they are also trying to float and swim through as many people as possible but certainly not all. As a part of cost cutting, some of the employees need to be laid off so that the company and others can survive. Similar things happens in a lift, when it is overloaded; ship, when it is sinking and even airplane, when it is overloaded and etc. Something or someone needs to go out for the rest of them to survive.
But, what is the pattern? Who needs to be laid-off? When? How? There are many such questions that need to be addressed. Let's move further and discuss.
The Pattern
There is a set process that needs to be followed at the time of laying-off. I am not sure how many companies actually follow it. Let me elaborate.
1) Freezing the recruitment. No new hiring.
2) Fresh graduates or those who are new to the market will find it difficult to get a job. More so, if they are not from A-grade institutes.
3) Last in, First Out. Among the employees who are already inside the company and are employed, the person who has joined recently will be the first one to go out. To be more precise, all those who are on their probation will be shown the door.
4) Average performers or difficult employee will also be shown the door. Performance records of last three years will be re-examined and reanalyzed and those with average or below average performance will be shown the door.
5) Outsourcing to increase. Most of the routine functions will be outsourced and those departments will be closed.
What more to expect?
1) Training and Development programs to freeze. No more expenditures on company sponsored training and development programs.
2) Perks, benefits and retention allowances to be withdrawn. The company will freeze all perks and benefits that has been extended to its senior employees.
3) Bonuses and incentives to be stopped. For the time being the companies will stop all the bonuses and incentives that are due to its employees.
4) Specialists are out and generalists are in. At the time when economy was booming, companies might have hired different people for different role within a function / department or most likely they have hired more than one person for a role, all these arrangements will go away and only those people who are willing to do the work of more than one person or those who can do multiple roles will stay in.
This is the basic process that is followed in many companies at the time of such economic crisis. What does it means to the people in general and what they should be doing? There is something to be learned from every crisis and this one is no different. Let's discuss further.
Learning
It is not important to know what is happening across the world but it is important to know what is happening in your company. It is also important to keep an eye on the market situation and keep yourself updated with the latest. If you are the one who has been laid-off, then you must be the one falling in any of the above mentioned scenarios. I think you also need to take the blame of your current situation. However, there is no need to get panic. Hold your emotions and look around.
If you are the one who has been laid-off then you must do the following:
1) Time with family. Remember when you were working and working for 12-15 hours a day, how difficult it was for you to find some time for your family. Now is your time to be with your family. Spend some time with them. Strengthen your bond with them.
2) Improve your skills and personality. No one is perfect and there is a scope for improvement in everyone of us. Use this time to work on your areas of improvement and weaknesses. Sharpen your skills.
3) Work on your professional and personal network. Networking is very important for the growth of an individual. Use this time to build and strengthen your professional and personal network, so that whenever the market situation improves, you get the benefit of it.
4) Heading back to school, colleges and institutes. This is also a good time for you to share your knowledge and experiences with new generation and to pass on your intellectual legacy to them. Get associated with some colleges and institutes to do so. There is a possibility that you might get paid for it, which in turn might give you the required financial support.
These are some of the ways you can spend your time during this phase.
Good time and bad time will always be there but when we pass through the good phase of our life we forget to prepare for the bad time. We get carried away. We do not plan for our future and difficult times lying ahead and crisis and adversities are part and parcel of our life that we cannot run-away from. Recession of one such crisis and we need to prepare our selves for all such adversities. We can do it in a following way:
1) Save generously and invest wisely. In such crisis, nothing but only your savings in the bank can save you. More the savings that you might have lesser will be your pain.
It is also important for you to invest wisely. The higher the risk the higher will be the gain and more higher will be the loss. Hence, one needs to think about it.
2) Both husband and wife should be working. In some conservative families, even in this 21st century, only males are allowed to work. But I think if both husband and wife works that also lessens the pain. If one person looses the job, the other will have and hence the money will still come in.
3) Keep updating your existing skills all the time and acquiring new skills. Don't take anything for guaranteed. Learn and relearn. Keep the sword of your skills sharpen, all the time. Learn new things and that can help in your professional growth.
4) Have a hobby that can also be transformed into a profession. We all should have some hobbies. To do things in our spare time that we are passionate about. Painting, dancing, music, writing, acting and etc are some hobbies that can also be transformed as a profession, if required.
Now, these are few things that might help you to overcome any type of economic recession or crisis in your life.
Conclusion
I hope that the points discussed in this article will be of some use to the readers. We are in a situation where no one can actually help and there is no point in blaming the God or the circumstances for our situation. You cannot also blame the Government of your country or the company you was working for this situation. It is just a tough time and the fittest will survive, others will get washed away with the time.
Disclaimer: This article is just an attempt to share the pain of those who has been laid-off in this economic recession. The views expressed in this article are the personal views of the author.

Sanjeev Himachali
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Careers in Economic Field

If you are interested in studying in the Economics field, there are a wide variety of career choices available to you. Generally speaking, most people with an Economics degree is whatever minor they choose, go for a Bachelor's degree, although a Master's degree will always ensure that you start out higher to the top of the companies food chain, and earn more annual income.
Career choices in the field of Economics can include Economic Consulting with research companies or consulting firms, where you would advise the company on business strategies and help to prepare economic evidence for court cases. Another destination that many Economic graduates find is law school. In the field of Economic law, you would have the chance to influence many decisions based on the economy, and would be able to contribute to many firms and government agencies. And, speaking of government agencies, there is always the choice of working directly with the government through non-profit organizations. The government, local, state, and national, hire Economists to aid with the statistic and analysis portion of business.
A look at the potential annual earnings for majors in Economics shows that, with a bachelor's degree, for instance if you decided to pursue your degree in Economics with a concentration in Finance, the annual salary that you could expect in your first year would be around $45,000, whereas a degree simply in marketing would earn you only $36,000 annually. The low end of the earnings for an Economy major, reported in 2005 was $24,000 for a bachelor's degree, while those with a Master's degree earned $37,000 starting annually. Wages can go up to nearly $100,000 yearly, depending upon whether you decide to seek employment with a private or government sector. The Federal Government's annual salary for economists with a Master's degree in 2005 was $89,441. That's the average salary, so keep in mind that you may have to put a couple of years into the job before you can expect your salary to meet this standard. Overall, Economists are expected to earn a significantly higher income whether they are working with the government or with a private company, simply because the need much outweighs the supply.
Economists are normally employed within larger cities, however some do work overseas for varies companies, either government or private international operations. World Bank, International Monetary Fund, and the United Nations all employ economists from all over the world to work in their facilities.
If you are considering a career in the Economics field, there are a few minor requisites to keep in mind. Those interested in Economics will normally be able to pay great attention to details. This is highly important because you will spend much time on precise data analysis. You also must possess patience and persistence, since you will be required to spend many hours solving problems, and you will have long hours of independent study ahead of you. You must be able to present findings on your studies in a clear manner, both orally and written, so good communication skills are of the utmost priority.
A Master's degree or a PH.D is normally required for many private companies and most government agencies. Although a bachelor's degree will get you in the door to your Economics career, it's best to obtain at least a master's degree if you plan to start in a top position. You will also need at least a master's degree if you plan to teach Economics. Instructors and professors of Economics are among the highest paid career choices, outside of the Federal Government, so if you want to help others to obtain their goal in reaching an Economics degree, a master's degree will be required. The educational requirements and courses that you will need will, of course, vary depending on the college or institution that you attend. Basically, for a master's degree, you will need courses such as advanced economic theory, econometrics, labor economics, and international economics courses. These are the graduate courses that are required by most companies. Undergraduate courses will include microeconomics, macroeconomics, and econometrics, and the history of economic thought. The entry-level jobs for the Federal Government require a bachelor's degree with a minimum of 21 semester hours of economics and at least 3 hours of statistics, accounting, and/or calculus.
You can find more information about the courses required and available at the college or institution that you attend. Economists are a growing number, and will continue to be needed in our society, so if you have an interest, and have the necessary thinking, analysis, and data skills, a career in the Economics field would be a wonderful choice.

Find economic jobs and economic careers at Seek4Jobs.net.

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Economic Recession - Recession Definition and Causes of Economic Recession

Our economy is in turmoil in the Unites States and this turmoil is spreading world wide. Understanding what is happening can sometimes seem like it is much too complicated. However, you can get a basic idea of a recession definition and the causes of an economic recession.
Recession Definition
An economic recession is a situation in which a nation's gross domestic product or output is maintaining a negative increase for at least two successive quarters or six months. The decline in the economy lasts for more than just a couple of months. This decline also lasts from eleven months to possibly up to two years. A situation which is short lived is known as an economic correction. However, a prolonged recession becomes what is known as a depression.
Causes of Economic Recession
There are complex reasons in addition to simple causes as to why economic recessions occur.
One example is when consumers lose interest in purchasing products. Before a recession, there will usually be an overproduction of products causing supply to exceed the demand of goods. This will drive companies to increase prices, which in turn causes consumers to lose confidence and decide to decrease spending.
Some economists indicate that an economic decline could be caused by events that have a large effect on the economy. Certain events that harm specific companies or industries could likewise induce a recession, such as what is currently happening with the banking, credit and mortgage industries.
Over consumption may also be another reason for a recession. Spending more than what is necessary can contribute to debt. Debt can affect the amount people have in savings an what they have available for disposable income. Economic experts have been advising for years that the United States government as well as the people of this country should be more careful with their consumption and spending in the future.
Government economic policies could be used to fend off problems with the economy, but failure to allow for effective policies can have detrimental effects. If efforts are not effective, those policies could cause the economy to boom and then bust and then lead to inflation. When the policy makers do not pay attention and fail to address to the increasing inflation at the beginning of a recession, and think of it as a slow down in economic growth which will correct itself, additional economic disasters can occur and spread world wide.
Although there are several causes to bring about a recession, the hardest part is recovering from the affects of the economic turmoil. However, there are steps each person can taken to help lessen the impact the economy can have on them personally.

Are you tired of being worried about your job, home, and finances during this financial crisis? Do you want to know how to protect your home, assets, and your income in an economic recession? Visit http://surviveeconomicrecession.blogspot.com and find out more about how you can survive the recession.

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Economic Rent

The amount of money received by the owner of a production factor for having rented out the same is known as economic rent. The production factors may include labor, materials, capital and land. Such production factors may be involved in production process to sustain supply. It is the difference between the minimum and maximum amount of money that the owner of a particular asset is eligible to receive. The person who receives is termed as renter. It is different from other sorts of passive income because it has the effects of public revenue and tax policy within itself. The economic rent collected by the government for public finance is less adverse than production or consumption taxes.
The economic rent of a production factor depends on the elasticity of supply of the particular good or service. If the supply elasticity is neutral by being neither elastic nor inelastic, the supply curve soars high and the income is split between economic rent and opportunity cost. If the supply elasticity is inelastic the supply is vertical and the income would contain rent. If the supply elasticity is elastic, the supply would be horizontal and the income would contain opportunity cost.
Economic Rent and Transfer Earnings
Transfer Earnings is the minimum payment done to prevent a production factor to move into different utility. It refers to the satisfaction that a worker has in his compensation amount. If he is dissatisfied, he would seek another job. If the minimum rent of a property is x and the actually rented amount is y, then the economic rent is y-x. Transfer earning refers to the wages that are possible in an alternate occupation.
Economic Rent and Opportunity Cost
Opportunity cost is a type of economic rent which involves political barriers to create and privatize rents. A person may seek entrance in a particular guild through a big training and education investment thus fulfilling the criteria to become a member in the desired guild. In a competitive situation, being a member of the guild would be advantageous compared to the investment made. Those who do not find it possible, try to enter other guilds. An artificial scarcity is created in the members of the guild through the political restrictions.
Examples of Rent
A celebrated sportsperson like a star baseball pitcher may have high marginal revenue value while a servant or a dishwasher may have low marginal revenue value.

This article has been compiled by John J Neilson, a online Homework-Help provider.
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Book Review - The Economic Institutions Of Capitalism By Oliver Williamson

In this book, Williamson presents a refined and elaborated version of his transaction cost theory that he had first outlined in his 1975 book Markets and Hierarchies: Analysis and Anti-trust Implications. His book attempts to systematically examine those economic issues that classical economic theory simply assumes away. The classical economics believes that markets are perfect, and if they are not then the action to remove market failures needs to be initiated. Williamson, on the other hand, focuses on these economic issues that are acknowledged to be widely prevalent in any economic system. "If complexity is deep in the nature of things economic then that ought to be acknowledged rather than suppressed. An equilibrium approach to economics is thus preliminary to the study of main issues (Hayek on P8)." This book, then, is a scrutiny of such economic phenomenon as market structures, monopolies, anti-trust policies, labor policies, public utility regulation, vertical integration and other economic institutions that have traditionally been neglected by the economic theory.
His basic proposition that most of us are familiar with by now is that the transaction costs should be treated as a fundamental unit of analysis for understanding such issues. Drawing on three streams of research- economics, organization theory and contract law, he repeatedly highlights the need to consider the governance (or transaction) costs. "Rather than characterize the firm as a production function, transaction cost economics maintains that the firm is more usefully regarded as a governance structure (P13)." While his basic argument appeared sound and plausible, I got an impression that Williamson attributed more to transaction costs than it deserved. Why should we regard only governance costs? Why should we think that the firm is only a governance structure? In other words, in my view, instead of correcting an existing flaw in the theory, he seems to be, to borrow the stock market jargon, proposing an over-correction. The field would be better off considering a cost function that combines both production and governance costs or at least choosing the concept based on the specific requirements of the situation or problem at hand.
Having said that, let's now delve into the foundations of the transaction cost economics which is first three chapters in the book. Until this book, Williamson considered opportunism, bounded rationality, frequency and uncertainty to be the building blocks of TCE. However, in this book, he rightly puts forth asset specificity alongside opportunism and bounded rationality as the three legs of TCE. "Any attempt to deal seriously with the study of economic organization must come to terms with the combined ramifications of bounded rationality and opportunism in conjunction with a condition of asset specificity" (P42), which is assumed to be the most critical dimension of TCE (P30). Without asset specificity, markets are believed to be in a competitive world even if people are opportunistic and rationally bounded. This is because buyers and sellers can freely move between market players.
In contrast, uncertainty and frequency drop down a tad bit in the scheme of things. Now, they are supposed to be meaningful in presence of first three elements only. Conceptually, this makes a lot of sense. Take for example, if market players are uncertain about the outcomes, but they believe in the fairness of the parties to contract, the market mechanism would be adequate to deal with all the contingencies since the players would share equitably in the profits. However, we understand that such a behavioral assumption would be wrong since opportunism and bounded rationality are common behavioral traits. What intrigues me, albeit, is that if they are such common traits, then why they should even be made variables in the model. After all, a variable that doesn't vary is no variable at all. It is not surprisingly, therefore, to see most literature to refer only to asset specificity, uncertainty and frequency as the three pillars of TCE. Williamson himself seems to acknowledge this in a subsequent chapter when he mentions that "principal dimensions for describing transactions are frequency, uncertainty and asset specificity (P242)."
After outlaying his conception of economic fundamentals, Williamson proceeds on to explain the boundaries of firm, which is to say what transactions will take place in market and what within the hierarchically organized structures. In his opinion, if the expected costs or risk of transacting in a marketplace are higher than the cost of organizing the functions internally, then such transactions will take place within the firm. If we ignore his exaggerated claims, this is indeed novel and useful approach at looking the firm size and boundaries. No longer is the size of firm held irrelevant as is the case in classical economics. No longer is it believed that the firms will operate at marginal cost whether they produce internally or buy externally. It opens up a can of worms that classical economics under its perfect market and equilibrium economics assumptions puts aside as aberrations. This is a welcome change in the approach to the study of industrial economics.
Next, Williamson moves on to the main theme of the book: providing alternative explanations vertical integration, mergers and monopolies, and joining issues with anti-trust enforcements. He believes that vertical integration results not because of technological determinism or a desire for monopolistic power but from a pragmatic desire to economize on transaction costs. In the similar vein, he contends that non-standard contracting practices such as long-term contracts are not monopolistic practices, but perfectly justifiable attempts at minimizing transaction costs. Further, he attributes such decisions "to a condition of asset specificity (P86)" since asset specificity in conjunction with uncertainty "makes it more imperative to organize transactions within the governance structure that have the capacity to work things out (P79)." The author makes a persuasive case for five out of six hypotheses on the boundaries of firm. However, his fifth hypothesis that claims that "firms will never integrate for production reasons alone" seems a little far-stretched. The fact that some firms organize for efficiency reasons doesn't and can't automatically preclude the fact that some firms organize for monopolistic or technological reasons. Once again, the author's case would have been better served by refraining from such overstatements.
Next, Williamson turns his attention to analysis of such arrangements as can neither be classified as market contracts nor as hierarchical structures, but fall somewhere in between. Also known as hybrid structures, these include credible commitments, joint ventures, relational contracting, hostage models, reciprocal arrangements, and network relationships. His main claim is that even when such arrangements appear to be exercise of monopolistic power, they may be justifiable from transaction cost perspective. "A comparative institutional assessment of contractual alternatives discloses that efficiency purposes are often served by hostages and it is in the mutual interest of the parties to achieve that result. Not only can producers be induced to invest in the mutual interest of the parties to invest in the most efficient technology, but buyers can be induced to take delivery whenever demand realizations exceed marginal cost." Interesting proposition, but it doesn't explain the impact on the hostage (e.g. P&G) if the monopoly (e.g. Wal-Mart) decides to dump it! His second main claim derives from Coase's 1960 article on problem of social cost. Recall Coase's claim that when people are left to bargain among themselves, most economic externalities can be better resolved than when courts or other non-market interventions take place. Williamson develops on this proposition and claims that parties to a contract don't normally take recourse to courts, but try to use "private ordering" to resolve their disputes. I would presume this would chiefly be out of concern for future business relations.
Let's wrap up this review with a summary of strengths and weaknesses. For the strengths, I will let the Williamson speak for himself. To quote him,
"As compared with other approaches to the study of economic organizations, transaction cost economics (1) is more micro-analytic (2) is more self-conscious about its behavioral assumptions (3) introduces and develops the economic importance of asset specificity (4) relies more on comparative institutional analysis (5) regards the business firm as a governance structure rather than as a production function and (6) places greater weight on the ex-post institutions of the contract, with special emphasis on private ordering as compared with court ordering."
-Williamson, P387
While the theory is conceptually persuasive and logically sound, a principal weakness of transaction cost analysis lies in its post-facto nature of analysis. Notwithstanding Williamson's superb efforts, it has been rather difficult to define it in a way that it can be measured and tested. The theory in its current formulation continues to be plagued with a criticism that it's tautological in nature, after all ex-post facto any system can be shown to be economizing on transaction cost or at least that it will be eventually replaced if it doesn't. Therefore, transaction cost economics needs to find variables with predictive powers.
Williamson mentions three limitations of his work- its crude form, instrumentalism, and incompleteness. To me, these appeared more to be challenges for future research rather than any weaknesses in the theory. Besides occasional excessive enthusiasm and exaggerations and the difficulty in operationalization of the concept, a major challenge in reading this book is to be prepared to learn a new language! Williamson's choice of words lives a reader with no less an impression.
Overall, Williamson does a superb job in developing the transaction cost economics that had first appeared in Coase's 1937 article 'nature of firm', but had been left untouched until this work because of difficulties in operationalization and empirical testing. Williamson succeeded in overcoming most of these challenges and it is for the future researchers to meet the rest.
Reference:
Williamson, Oliver. The Economic Institutions of Capitalism. 1st. New York: The Free Press, 1985.

Punit Arora is a research scholar on management and public policy.

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Understanding Economics - Why Is It Important?

Economics can be best described as the study that defines how people and society make decisions to fulfill their needs and wants with the limited resources that are available to them.
The study of economics can be divided into two major branches which are:

1. Microeconomics: Microeconomics primarily focuses on individual people and businesses. It explains how individuals react when faced with decisions about spending or investing their hard-earned money and how individual firms behave when their competing with other firms.
2. Macroeconomics: Macroeconomics focuses on the economy as a whole, looking at various factors which may affect it such as interest rates, inflation, and unemployment. It also concentrates on economic growth and government interventions.

Why Is It Important?
The answer is simple. Economic revolves around our everyday life. We make economic decisions when we're picking a movie or deciding what to eat for lunch. Everything that involves weighing several choices and sacrificing one benefit for a greater benefit is an economic decision. This means that everything we do is related to economics and money in one way or another whether we like it or not.
We are faced with limitations and constraints on a daily basis. Learning about economics can help you understand how people and society use the limited resources in the best possible way to fulfill human needs and wants.
Economics will teach you how to improve your decision-making skills. It will show you how to analyze every possible option and make the best and most rational decision out of whatever limitations that you have.

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