More than 65 years ago Friedrich Hayek parenthetically remarked that while ‘man has learned to use [the market] ... he is still very far from having learned to make the best use of it’ (1945: 528). The ensuing years have seen significant innovation in the structure and use of markets, including the infusion of market mechanisms into organizations (Zenger and Hesterly, 1997). However, the focus in extant theory of the firm scholarship has largely been on the market’s high-powered incentives. But markets – as we argue in this essay – have additional features, such as information aggregation and matching. These novel features of markets have recently begun to receive managerial attention as organizations experiment with market-like practices such as crowdsourcing, information and prediction markets and open innovation. While we are descriptively learning much about these market-like practices and forms, nonetheless the theoretical foundations behind them, their implications for comparative governance (market vs hierarchy), their possible forms (market–hierarchy hybrids) and implications for strategy and competitive advantage have yet to be fully vetted in the organizational literature. The purpose of this essay, then, is to step back and theoretically discuss the common threads that unite innovative practices such as prediction markets and crowdsourcing, and more importantly, to discuss their comparative implications for markets and organizations, as well as market–hierarchy hybrids. We specifically focus on two, relatively neglected features of markets as a governance form – features that give markets an advantage over firms and hierarchy: information aggregation and matching. We provide a contrast of the informational and matching-related assumptions associated with coordinating economic activity via the market’s price mechanism versus hierarchy and organization, and highlight the potential gains from infusing the information aggregation and matching-related features of markets into organizations. While organizational scholars have certainly focused on the importance of information in organizations (Stinchcombe, 1990), and economists have highlighted the role that information So!apbox editorial essay Downloaded from soq.sagepub.com at Oxford University Libraries on October 16, 2015 164 Strategic Organization 9(2) plays in markets (e.g. signaling, information asymmetry; Spence, 1973; Stigler, 1961), nonetheless the market’s capacity for information aggregation and matching has not been well integrated into our theories of the firm – specifically, questions of comparative governance and radical market–hierarchy hybrid forms of organization. Based on our discussion, and in the spirit of the So!apbox forum, we also speculate on possible areas of future research for the field of strategic organization
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