Chandler's Invisible Hand

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The Chandlerian Approach of the Firm (19/10)
Briefly describe the contributions of Chandler to the field of theories of the firm, and then show how his approach differs from the one proposed by Oliver Williamson.

The Visible Hand also adds an empirical dimension to the literature on the theory of the firm. This literature asserts that firms will expand and integrate when the costs of allocating resources within the firm are less than the costs of doing so through the market.

The visible hand –Chandler’s perception of modern enterprises Chandler is the founder of research on the development history of modern industrial enterprise. In his book, the visible hand : the managerial revolution in American industrial enterprise, published in 1977, chandler made a systematic investigation of the emergence of modern large enterprises. This book has a special value for the development of the modern theory of the firm. Using solid and rich historic data and i-depth and penetrating analysis, chandler verified Coase’s theory. He held that, in coordination economic activities and allocating resources, modern industrial enterprises had replaced the market mechanism- Adam smith’s “invisible hand.” Another major contribution Chandler made to the modern theory of the firm was in distinguishing the “modern business enterprise” from the “traditional business firm.” Chandler provided a relatively comprehensive definition of modern large enterprises. The modern business enterprise in his mind has two specific characteristics: it contain many distinct operating units and is managed by a hierarchy of salaried executives. Later, Williamson undertook a more thorough examination of the hierarchical structure in modern enterprises.

I the 19th century, markets grew as the population became more urbanized, educated and richer. To take advantage of this, firms needed to figure out how to engage in mass production. For chandler, this presented the owners of firms with a set of...
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