Internal and external hybrids and the nature of joint ventures

This chapter attempts to bring some clarity and consistency to the literature on hybrids, networks, and joint ventures. That literature is now a thicket of ambiguous concepts and mutually inconsistent theories. I use the tools of transaction cost theory to develop a comprehensive framework that provides clearer definitions for the terms hybrids, networks, and joint ventures and shows the relationship between them. I build my argument on a distinction between organizing method (the price system and hierarchy) on one hand, and institutions (firms and market arrangements), on the other. I posit that there are only two basic organizing methods, the price system and hierarchy, but many institutions which can be defined by their relative use of each of these two organizing methods. Hierarchy works by directing and controlling behavior, while the price system coordinates behavior indirectly through the exchange of outputs guided by prices. Internal hybrids are firms that complement hierarchical methods with a limited amount of price incentives, while external hybrids are market transactions tempered by some behavior constraints. Networks are external hybrid transactions that are enforced through relationships. Equity joint ventures, cooperatives, and partnerships are not hybrids, but a particular type of firms.