Price, Authority, and Trust: From Ideal Types to Plural Forms

Abstract

This review article focuses on the three control mechanisms that govern economic transactions between actors: price, authority, and trust. In contrast to conventional approaches that view market and hierarchy as mutually exclusive control mechanisms (or as poles of a continuum), we argue that price, authority, and trust are independent and can be combined in a variety of ways. For instance, price and authority are often played off each other within firms, while trust and price are sometimes intertwined to control transactions between firms. We also identify a type of organization largely ignored in the literature: the plural form. In the plural form, organizations simultaneously operate distinct control mechanisms for the same function. For example, organizations operate franchises and company-owned units under the same trademark, and companies sometimes make and buy the same part. To understand this form, the analytic focus must move from individual transactions to the broader architecture of control mechanisms