ABSTRACT
This chapter analyses the extent to which Oliver Eaton Williamson’s modification of standard theory allows to argue on a theoretical level that integration is economically beneficial to society, that it reduces the economic costs of production, inclusive of transaction costs, from what they would otherwise be without creating other costs that exceed the savings in production costs. It focuses largely on one issue, that of the implications of Williamson’s analysis for introducing the assumption of noncost-minimizing behavior into the objective function of the firm. X-efficiency theory can contribute to an assessment of integrations/mergers only if, and the extent to which, the creation of the larger corporation diminishes competitive pressures. The chapter examines the manner in which the institutional framework in which the firm operates affects the economic efficiency of integration. Corporate size and x-inefficiency are strongly related, especially when the typical firms engaged in merger activity are lacking in the corporate culture most conducive to x-efficiency in production.
