Market-as-Network; So What? Ivan Snehota



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Market-as-Network; So What?

Ivan Snehota

University of Lugano

Switzerland

Paper prepared for the

19th IMP Conference

September 4-6, 2003

University of Lugano

Switzerland



Abstract
Ever since its beginning the IMP research has been concerned with the limits of the market concept as guidance for managerial action, especially in markets where customers are businesses and other organisations. At first, it has focused on the empirical evidence of phenomena not foreseen or not considered endemic to the working of the market by the dominating theories of market, namely the existence of continuous exchange relationships and interdependencies among these. At a later stage, much effort has been dedicated to conceptualizing relationships, their dynamics and the network form consequent to the interdependencies.
In hindsight it appears that the claim of IMP research that (business) markets are networks of exchange relationships among a varying and various set of actors amounts to postulating that markets are institutions rather then a distinct mechanism in the assumptions of economic theory and much of the marketing discipline. Institutions, whose properties and functioning have some features of pervading consequences for market actors.
The aim of the paper is to explore some of the consequences of adopting the “market-as-network” perspective for research in the marketing discipline and the practice. It puts in relation some of the key concepts of the IMP tradition in relation to the emergent concepts of institutional school in economics. In particular the discussion focuses on the issue of market definition, the concept of differentiation and of the strategic autonomy.

Key words: market - exchange processes - market definition - strategic action


Market-as–Network; So What?

- On the power of a perspective and impact of it.


Ivan Snehota

The question of what market is does not seem to bother most of those who refer to it in everyday language. They appear to know the meaning of it and it seems to work perfectly well as a notion that conveys connotations that many apparently can share. It is less well defined as an analytical category – a concept, in some of the disciplines that are interested in “markets” and where the meaning of a “market” is at issue. There are several such disciplines: economics, economic history, sociology and, not the least, marketing and other disciplines of management. Anyone looking for definitions of market in the literature today is likely to agree with the Nobel Prize Winner in economics, Douglas North, who once observed: “it is a peculiar fact that the literature of economics and economic history contains so little discussion of the central institution that underlies neo-classical economics – the market” (North, 1977:710). Economic literature is no exception in this respect; neither of the other disciplines concerned seems to contain much of discussion of the market concept, management and marketing included.


The purpose of this paper, however, is not to debate what market is. Such an attempt would be overly pretentious and probably pointless. Who would discuss what the sun or a chair actually is? Any object or phenomenon is many different things dependent on the angle chosen to approach it and explore it, and can be approached from different angles. Different perspectives result in different pictures of the landscape where different features of it appear or disappear and assume major or minor proportions. Perspectives always entail “distortions” of the phenomena, but then again no picture can embrace all perspective and any picture always implies a certain point of observation.
Acting is related to pictures and images. They provide guidance for how to act, if we are to act, on the phenomenon. Therein lies the importance of the perspective. Therefore, the purpose of this paper is to explore how the perspective taken on the “market” affects the research in marketing and the way to act of those who act in or on, what they see as “market”.
I am concerned here in particular with implications of a perspective that can be labelled “market-as-network”1, elaborated by the IMP stream of research in marketing, as opposed to the perspective which I will label as “exchange facilitating mechanism”, or “price-mechanism”, common in the neo-classical economics and taken over by many others. As it will become clear further on, I will argue that the market-as-network perspective is clearly siding with the perspective on markets as an institution, discussed in economics and partly in sociology.
This paper is written from the angle of the discipline of marketing where much of research is, perhaps implicitly, inspired by the perspective of neo-classical economics, even if other perspectives have been explicitly proposed in the past (e.g. Alderson 1965) or more recently (Stern & Reve 1980, Anderson, Hakansson & Johanson 1994). I will argue in particular that the market-as-network perspective yields different normative implications for business management compared to those of the market as exchange mechanism and, if accepted, implies a research agenda in marketing with markedly different priorities. As a side issue it will be argued that the way to look at market affects also the way to delimit the domain of the marketing discipline, whether defined by problems or subject matter.
Why has the market-as-network perspective emerged?
To look at the origins of the market-as-network perspective can help us to show why and how perspectives matter. The origins of the perspective are linked to studies of business markets in the 70s. It coincides with a period of shift in the marketing discipline that has taken place in the preceding decade. What happens during that period is that the main thrust of interest and research in marketing that has been to large extent the functioning of market/distribution system (e.g. Alderson & Cox 1948, Cox & Goodman 1956) shifts towards major concern with marketing management that is with various decisions and activities in producer/seller organisations (Verdoorn 1956, Borden 1965). The interest in research on market processes have diminished and the marketing management has drawn heavily on the prevailing perspective in economics with its assumptions about how markets are and work.
The assumptions regarding market functioning (borrowed from economics) and the normative postulates of marketing discipline at that time, tuned out only partly relevant both to gauge various aspects of business markets and as guidance for action for practitioners. The research tradition that would later become the one following the market-as-network perspective starts apparently from the problems met when approaching the subject business markets following the dominant perspective of market as price mechanism. Such a perspective simply did not permit to explain certain features of business market recurrent in various studies.
The initial phase of this research has been empirical and inductive and contains little of theorizing. It consists in gathering empirical evidence of some phenomena recurrent in industrial markets that have not been foreseen in the available market theory, in particular, the existence of continuous interactions and exchanges when buyers and sellers were business organizations. There was little in the available market theory to explain why, business between two organisations should be done on a continuous bases with only limited switching to other suppliers or customers. The empirical observations has led to some quest for the rationale of the phenomenon then called relationships but mainly to more detailed empirical observations focusing on these buyer seller relationships and their various features. One of those that come in foreground was the role of the continuous relationships for the businesses that have taken part in these. It became apparent that continuity appeared to be important for various reasons for both buyers and sellers. Another aspect of the business markets that came thus to the foreground was that numerous interdependences, in the sense that what happened in one relationship could produce effect in another one, appeared to exist between the relationships of a company. The interdependences, further explored in the subsequent research, have turned out to be generalized in business markets. At a later stage, such findings have been formulated in terms of relationships between buyers and sellers in business markets forming a network-like structure.
The existence of relationships and the network structure of business markets, main empirical observations of the IMP research have not been foreseen or explained in the perspective of market as mechanism. Once observed they became the problem of theory and assumed, naturally, the centre of the stage. Subsequent research has been more and more focusing on relationships and their role for market actors. The perspective, here labelled as “market-as-network”, yielded thus different pictures and different needs for theorizing – that is for explaining the unexpected phenomena - the development of buyer-seller relationships and interdependences.
What is the essence of the market-as-network perspective?
The effort to explain the existence of buyer seller relationships and of the network-like structure of the business markets has not been very systematic. It has been rather concerned with gathering evidence of the various processes in the relationships and their impact on the companies involved. Nevertheless, the mounting empirical evidence has lead to formulating numerous hypotheses regarding critical relationship processes and the role of relationships for the market actors involved.
Some of the hypotheses that emerged and have found apparent support in the empirical observations appear to be falling in three broad categories. The first is that social relationships play an important role and affect in various ways on the development of business relationships (e.g. Hakansson ed.,1982, Easton & Araujo 1992). The second that interdependences and continuity in relationships favour in particular development of new technical solutions (e.g. Hakansson 1989, Waluszewski 1990, Lundgren 1995) and finally that continuity is important for the development of the business and for the economy in use of resources in business enterprise (e.g. Hakansson & Snehota 1995, Gadde & Hakansson 2002).
The common underlying theme in these hypotheses is that the buyers and sellers, being limited in their knowledge and understanding of the context in which they act – bounded in their rationality, do find in continuous market relationships (and interaction) a way to overcome their own limitations. Continuous interactive market relationship permit not only access to resources of others but also to find and work out solutions to problems they meet drawing on experience and capabilities of others. Relationships existing in the market appear thus to be instrumental to solve, broadly put, the resource problem of the actors (Ford et al. 2003). The market seen as a network of patterned relationships appears thus more than the mechanism to facilitate exchange, as implied in the market as mechanism perspective. It appears as a platform that facilitates the economic behaviours of market actors.
Those who study business markets have not been the only ones to find the market concept resulting from the market as mechanism perspective of limited use for their respective purposes. Within the very same marketing discipline there has been, until the turn of the discipline to the marketing management, a long tradition of approaching the market from a distinct perspective, different from the one of neo-classical economics. It has been pointing to the systemic dimension of the markets and postulating the notion of market as a complex behavioural system (e.g. Alderson & Cox 1948, Cox & Goodman 1956, Alderson, 1965) in which various actors interact with different roles. Similar argument seems to be underlying much of the research in marketing on distribution systems and channels (Stern & Reve 1980).
Both in economics and management, but also in other disciplines there have been and continue to be several schools and research traditions that have expressed their dissatisfaction with what it offered for the purpose at hand. What these appear to have in common is the complaints, or rather concern with, that the prevailing market perspective provides very limited guidance in dealing with and explaining various phenomena that this or that research group have been concerned with.
It is beyond my capacity and ambition to provide an exhaustive account of the various alternative perspectives on markets in other disciplines. It stands clear, however, that there have been numerous instances in which in other disciplines similar phenomena as those characterising business markets, has been met and trying to explore these by turning to the market as price mechanism perspective have not been of much help. There are few doubts that the prevailing perspective of market as pricing mechanism has considerable appeal as it yields theories that delight, are elegant and parsimonious. It is equally clear however, that it is not “performative” for certain classes of phenomena and that is where the doubt have been raised and quest for a different perspective is taking place. It is also clear that some of those can be easily related to the market-as-network perspective.
A quick glance at some of the disciplines concerned with market shows some of these common themes. Building on a long tradition, several sociologists and historians approaching and observing some market phenomena have pointed out the difficulty of separating the working of the market from the social and institutional sphere (e.g. Polanyi 1957, Granovetter 1985, Smelser & Swedberg 1994, Lindblom 2001). Others have been concerned with the relationship between social structure of markets and the economic action (e.g. Willer 1985, Burt 1992). In economics concern have been expressed, to put it very broadly, with need to explain dynamics of change in markets and their evolution, an issue for which the perspective of market as pricing mechanism has not much to offer because it relegates the factors of change to the forces that are external to the market. (Coase 1988, North 1977, Hayek 1945, Kirzner 1973). Another issue on which there is some agreement among the critics of the prevailing perspective that it yields “a theory of value allocation, but it lacks a theory of value creation” (Lazonick 1991:65). Others have focused on market phenomena, empirically observable but lacking sufficient explanations in prevailing market theory, such as the growth of the firms and existence of buyer supplier relationship, similar to hose found by the market-as-network perspective (e.g. Penrose 1959, Richardson 1972). More recently an institutional perspective has found many advocates in order to produce better understanding of observable dynamics of markets (e.g. North 1990, Loasby 2001).
Indeed, the market-as-network perspective yields a concept of market that is equivalent to the idea put forward in several disciplines that market is, primarily, an institution. It is an institution in so far as it consists of a set of actors connected by exchange relationships to a network like pattern of behaviours. The claim that market is an institution leads to stressing that its form is always specific resulting from interaction of its elements – the single actors that form the institution and that as an institution it is formed by evolutionary processes. It also implies that institutions are the structure of the context of action imposing limits on but also enabling action.
The market-as-network perspective yields thus pictures and images of market that differ in several respects compared to those produced by the perspective on market as price mechanism. For our purpose there are at least three aspects on which the differences are rather profound and that need to be underlined: the first concerns the nature of the relationships among market actors; the second regards the boundaries of the market and the third is about the dynamics of market evolution.
On the first point the neo-classical perspective on markets assumes that the interaction among buyers and sellers in the market, which are the only two types of actors, is limited, and is (and should be) mainly reduced to price signalling. Price conveys all (or nearly all) the necessary information to clear the market and make the exchange happen. The importance of other information is limited. That because both sellers and buyers know the needs and availabilities and capacities of each other. According to this perspective exchange takes form of single discrete transactions with counterparts offering and agreeing to the “best” price available. The needs are a given and relatively stable and the relationship between a buyer and a seller is only virtual; it is the instantaneous transaction.
On the second point, it is assumed that boundaries of a market are given by the product (and its substitutes). The set of actors that form the market consists of buyers and sellers of a given product. It is two-layered in terms of roles; buyers/consumers of the product on one side, and sellers/producers of the product on the other side. The product is the parameter of the market; price is the variable over which market actors exercise influence and on which they mostly compete. Basically every product has a different market in the sense different set of producers/sellers and consumers/buyers.
On the third issue, it is assumed that markets are stable or tend to stability; they tend to equilibrium on both the seller and buyer side. Changes in the market are consequence of changes elsewhere that can, but not necessarily will, be brought into the market. The exogenous factors that can induce change in the market can be the technology that affects the production function and in the social sphere that affects the preferences of the customers. The conduct of market actors is such that it tends to equilibrate the market as they adapt to exogenous changes.
The picture of the market produced in the market-as-network perspective differs markedly on the three aspects. First, it puts into foreground rich communication and interaction between market actors (mainly buyers and sellers) entailing not only information exchange but also important elements of social exchange. Building some degree of trust and commitment appears a necessary condition for carrying economic exchange transactions. The interaction and communication tends to have a time dimension; there is some need for mutual adjustments and thus for continuity. The past and expected future interaction tends to bind selectively single specific actors and creates specific interdependences.
On the aspect of market boundaries the market-as network perspective entails a picture of a variable set of actors connected by continuous relationships within which different good are transacted. What defines the market is the set of actors and relationships. Markets are thus not defined by the product. Product is a variable in the single exchange relationships and across relationships between actors. All market actors are differentiated (heterogeneous) with respect to the products they demand and offer. They are also differentiated with respect to their role set. Sellers are not necessarily manufacturers and buyers not necessarily consumers, their sets of relationships can overlap but are never identical. As a principle the market as net of relationships is endless. Putting boundaries is arbitrary. A market can be defined as a subset of relationships and actors that is “relevant” for a certain focal actor. There are significant interdependences and cross-effects among these subsets (actor relevant markets).
Finally, despite the evident continuity, the market seen from the market-as-network perspective, appears to be inherently unstable (evolutionary) as the participants continuously change and revise their plans and modify the content (also in terms of product) of their relationships. They mutually adjust to each others’ behaviour as well as to exogenous changes.
The two perspectives generate thus pictures of markets that differ widely on non-marginal aspects of the phenomenon. The question remains whether these differences matter or whether they can be regarded as simple matter of dispute among researchers – an academic debate on what makes the chair to be a chair, or the sun to be a sun. The position that I will take here is that pictures matter because of their impact on how those that, for whatever reason, act on or within the market. On this, I am inclined to side with the long list of those who elsewhere argued that in the context of social reality the map is not only guidance for action but even the foundation of the actual future context within which actors will perform. Thus formulated it is difficult to find dissent in most disciplines (e.g. Thibault & Kelly 1959; Searle 1996; Coase 1988, Loasby 1999; Moran & Goshal 1999).
The issue that we will turn to next is not whether the picture of market outcome of the market-as-network perspective is realistic, nor is it whether and to what extent it has been adopted. I will confine the following to exploring the question what if the market-as-network perspective is taken. Assuming that the picture it yields is the one roughly sketched above, what implications would it have for conduct of those who perform in the market and of those who are likely to engage in further research in marketing.
Consequences of the market-as-network perspective.
Among the academics concerned with various fields of management it is common to be explicit about consequences of an empirical finding for practice of management. It amount to discussing the question – if you posit that things work this way, what does it imply? Suffice to glance through major academic journals in management, and marketing in particular, and to count the proportion of articles that conclude with a section entitled implications for practice of management and further research within the discipline.
Research carried out from the market-as-network perspective is hardly an exception. Many have been advocating the need to link explicitly the research findings to management practice. Others, however, have been taking the stance that the implications can only be sorted out by those who face the problem of practice, whether the practice is one of management or research. It is not my ambition to settle such a dispute, nor is it to add to arguments on either side. I can only re-state the position, expressed earlier in this paper and hardly controversial, that there is a relationship, between the images (“framing”) and purposeful behaviour, that is, that perspectives and picture impact on behaviour.
The problem is possibly that much of the implications of the market-as-network perspective have seldom been discussed systematically. Rather, my impression is that the implications have been discussed with respect to one or another partial aspect of the picture produced from the market-as-network perspective. Seldom, it has been taken on the level of the market concept as a whole (for an exception cf. Ford et al 2003). Therefore I will focus on a few broad implications of the market concept consequent to the network perspective. Looking at the findings and postulates of the research tradition that has taken the perspective I think can only paraphrase here the argument of Coase (1988:1); the very arguments of the market-as-network perspective appear to me so simple that they seem to be self-evident, their rejection or incomprehensibility would seem to imply that others have a different way of looking at the market and do not share my conception of the marketing subject. Indeed, this is certainly true.
Approaching the issue of consequences of adopting the market-as-network perspective there are two broad considerations to be made. The first is not really about an implication but a common, in my opinion erroneous, conclusion drawn from the picture of market as a network-like set of relationships connecting actors. It is the conclusion that runs something like the following: many markets certainly display the continuous relationships among buyers and sellers but these are due to other factors that interfere with the concern about economy. The relationships arise because other factors such as politics, socially motivated behaviours, sometimes prevail, but these are in conflict with the pursuit of economy by the market actors. There is nothing in the research findings that actually supports such an opinion, rather the contrary. I am inclined to point to the fact that the findings of network-like structures stem primarily from observations of markets where “economy” in the broadest sense is of primary concern for both buyers and sellers – namely markets where both buyers and sellers are businesses that systematically explicitly declare that they pursue “economic returns” and that they apply as a rule the criterion of economic impact of their market conduct on the own organization. So the notion of network structures of market does not imply “economic inefficiency”. Economy, it seems to me, remains the leit-motive in the conduct of market actors even when it gives origin to network like structure. It may more depend on how the economic efficiency is conceived. If taken broadly, that is not limited to effective allocation of existing resources but referred to making the best use of resources – past, actual and future, it is not incompatible with a network structuring of markets. It also seems consistent with broader formulations of the nature of the economic problem, not uncommon even in economics (e.g. Hayek 1945; Coase 1988; Lazonick 1991, Moran & Goshal 1999).
The second consideration is related to the time dimension. Focusing on relationships and postulating relationships as a central phenomenon in the market landscape amounts to introducing the time dimension in the market concept. Relationships arise over time and because the past is projected on the future. Actually, saying that the market-as-network perspective produces a picture, as I have done several times above and will continue for the sake of simplicity to do in the following, is somewhat misleading. The perspective produces snapshots of a movie but emphasizes that in interpreting the pictures are part of a sequence and only has meaning with respect to the preceding and following. This of course has some implications for what can be observed and how it can be analyzed.
Consequences for management.

We can turn back to our original question: assuming that markets are networks how is it likely to affect the conduct of market actors, in particular the conduct of various sellers and buyers with their interactive relationships that selectively relate some to others. Does it bring to the foreground any new aspects of market conduct or does it cast doubt about the relevance of some of the issues assumed critical if compared to the well-known assumption of market as essentially a price mechanism. There are numerous hints in the rich literature on the market-as-network that suggest that it does matter. Question that remains is how to sort out the consequences and implications of the different pictures of the market for market actors. Since a purposeful action requires some interpretation of the context and of one’s relationship to it, setting of goals, however vague and complex, and adopting certain means, even if of dubious adequacy to reach these goals we can explore these three aspects of market actors’ conduct: the interpretation of the context of action, setting the objectives and applying the means to reach the objectives.


How to make sense of the market? There are here at least two issues here on which the answers differ markedly dependent on the assumed picture of the market. The first regards the unit of analysis and the second identification of processes and variables critical in order to understand what is going on and what should be done. The answers on these appear rather straightforward when we depart from the picture of market as price-mechanism. The natural unit of analysis is the demand and the supply for the product – producers and end-users. The critical process in functioning of the market is the competition among sellers (and buyers) with the aim to outperform others in satisfying the demand, usually offering and seeking product transactions “with better economy” - generally that is in a more cost efficient way. The critical variable appears to be the number of competing sellers and buyers, on the same, levelled, product ground.
When we depart from the picture of market-as-network both the issue of the unit of analysis and of what are the critical variables in understanding the market on which to act becomes more problematic. Defined as a set of buyers and sellers linked by exchange relationships the market is endless. That is not very helpful as a unit of analysis for conduct of a single actor. Understanding the context of action of a market actor requires defining the portion of the market - a network that is a subset of actors and relationships – that is actor specific. Such a unit is not naturally given; its boundaries can only be imposed by the horizon of the actor. Each actor’s horizon depends on the actor’s knowledge and understanding of relevant others and is therefore arbitrary, subjective and shifting. The key is the awareness of and understanding of other actors and existing relationships. Bothersome as it may appear this variable nature of the boundaries of the market has to be accepted. What appears to be a problem of analysis is a substantive feature of the market once we consider product as a variable in relationships content. Attempts to standardize the boundary setting are likely to muddle the market picture and interfere with insight in its dynamics.
That brings us to the second issue, which is what to look at in order to gain understanding of how the relevant market for the focal actor works. Somewhat broadly the critical processes and variables in the network picture appear to be coordination and diversity of actors and relationships. In the relevant market context of every actor there is some variety of roles and relationships. Much of the empirical research on business markets has been emphasizing this and has put in evidence the “heterogeneity”, both in the content of relationships and roles of actors. To simplify somewhat the indications; in the relevant network of an actor there is a set of different types of “customers” different types of “suppliers” selectively related by more or less strong and close relationships. The role of “competitors” is blurred, diverse and by far not the dominant one. The diversity of roles and relationships makes the market to acquire a depth different from the two-tiered buyer-seller market.
It is the diversity that makes the coordination the critical process in the network form. The single individual buyer – seller relationships arise from perceived interdependences and result in interdependences that can become manifest as technical, commercial or social links, ties and bonds. If one uses terms of traditional industry analysis the critical interdependencies appear to be “vertical” rather than “horizontal”, that is among providers and users of resources. Given the diversity the interdependences, manifest in relationships, are specific rather than generalized. Tracing and understanding interdependences, in and across relationships, is a condition for interpreting the dynamics of the relevant market, and for identification of effective “strategies” in market conduct. Tracing the actual interdependences is important because they are both limiting and enabling the individual action and underlie the dynamics of the context. The impact on the single actor is thus both negative and positive. They represent bounds on the autonomy of market actors as any action will have a collective dimension in so far as it involves others. They facilitate the actor as they “close” the context and make it actionable. Even within the bounds the autonomy of the single actors remains limitless.
Making sense of the market as it appears in the network perspective is certainly less straightforward and more demanding than market analysis that aims simply at gaining a more fine grained picture. Interdependences and relationships are less transparent. Furthermore, the network structure arises from incomplete and partial knowledge of the single actors. Under such conditions even the awareness of interdependences does not warrant the possibility to foresee any future state of the network. Attempts to forecast the future states are bound to fail. The sense-making has only the function to enhance the behavioural repertoire to participate in the development of the market. In that sense understanding of the processes is more critical than being informed about the current state and features of the structure.
What to do? The assumptions of what are the critical processes and variables in the functioning of the market have consequences for what makes an actor “effective” in the market. That is a very broad and entangled issue that has been in focus of much of the strategy literature in management, much less in other disciplines dealing with market. One can therefore borrow some of the conceptual framework of strategy management to start with. Invariably the issue of effective conduct revolves around the mach (or fit) between the features of a single actor (individual or organization) and its context. Dependent on the assumptions about the features of the market context, however, two rather different aspects of the match come to the foreground.
In the substantially homogeneous context, resulting from the market as mechanism perspective what matters are the characteristics of the actor. Its success (market effectiveness), that is becoming a valued exchange counterpart for others depends on the differential of the offering with respect to others that compete for the market (same supply, same demand). Becoming “better”, or as the strategy literature puts it to outperform others, requires to read the competitor’s conduct and to become “better” on the same game.
In a context of specific interdependences and differentiated roles a different aspect of the match becomes critical. When the exchange partners, actual and potential, are heterogeneous, in whatever dimension (needs, perceptions, actual conduct), then the effectiveness of a market actor will depend on matching the heterogeneity of the context. Becoming “better” becomes thus a matter of single specific relational match. It looses the sense of direct comparison to other “competitors” and becomes matter of other “alternatives” for the counterpart, endless and heterogeneous. Competitiveness and competitive advantage become thus meaningless as guidance for (future) effective market conduct. What comes to the foreground is the capacity to “co-operate” with single differentiated exchange partners. The term “to co-operate” here is meant in a strictly technical sense of co-action under conditions of interdependence and not referred to communality of intentions.

Discussing the unit of analysis “market” we argued that adopting the network perspective requires adopting the notion of “particular market” for each of the actors. That makes the notion of competing for the market meaningless. To become an effective market actor requires constructing the “particular” market. Making of the market, however, cannot be done in isolation and autonomously by any of the actors and always has thus a collective dimension. It entails organizing since market effectiveness of an actor is matter of external and internal organisation. Organizing externally and internally is about arrangement of roles and connections.


The role of an element (an actor) in an organization and thus its effectiveness reflects its uniqueness in relationships to other elements. In a heterogeneous network structure it depends on its capacity to connect other elements in a unique way, to combine different elements of interdependence. Rather then differentiation, what becomes critical is the integration function, capacity to combine and connect different heterogeneous elements.

How to do it? The above argument that an effective market strategy of the single actor revolves around organizing the market and that the effectiveness of an actor is related to the uniqueness of connections it is able to establish leads us to the question how can that be done, or to be more precise what are the critical processes in organizing and achieving unique status in an organisation.
The traditional market picture provides few hints on how an actor in a market can achieve a favourable position. Possibly, it points to the importance of learning, in the sense of acquiring knowledge of how the market is – essentially getting information about others’ preferences and technologies, and then adapting to the state of the context. The assumption of autonomy and of a substantially homogeneous and stable context (except for external disturbances) reduces the complexity of the task to few dimensions. Somewhat stretched, the point seems to be that once you know what to do, then doing it is not a problem.
The picture of a market as an institution based on radically different assumptions about the working on the market – partial and scattered knowledge that accounts relationship formation and for the very same network form, emphasizes the divide between knowing what to do and putting it in practice. The making of the market - organizing, entails institution building process which cannot be achieved by unilateral design and is not matter of technicality; rather it is matter of collective enactment.
Enactment entails interaction and continuous trial and error in strive for improvement. There are apparently several processes critical to achieve organizing and making of an institution but a more systematic account is hardly available, at least that I am aware of. For our purpose here we could look in two categories of such processes. Those at work in single individual relationships and those that are at work at a collective network level.
Some of the processes that have been argued to be critical at the micro level of interaction within a relationship are interesting. A common theme seems to be that they are related to mechanisms of cognition and communication – to framing of the problems and connections in interpretation of problems and conception of possible solution. Exploiting of the heterogeneity and of the contrast and conflict in framing the problems and devising solutions appears one of the central issues. On a network level the critical issue appears to be the one of connecting and disconnecting various network elements and balancing the conforming and confrontation, consolidation and creation, and coercion and concessions (e.g. Rosa et al. 1999, Loasby 2001, Ford 2003). A more elaborated conception of the critical processes in developing markets is yet to be formulated.
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Any attempt to explore the consequences of a perspective for market conduct is likely to meet scepticism with respect to this and that conclusion. That lies in the nature of such a task. Contrasting views and interpretations are a requisite to any advancement of “usable knowledge”. On the whole the above discussion may not be exhaustive with respect to how the picture of the market consequent to the market-as-network perspective matters, but it seems to me not a question that it does matter. If we accept that we can confine the discussion to two issues: the first is how the picture is to be further elaborated the second is what the consequences of it are. That may bring us to consider the consequences of the perspective for research in marketing.


Implications for research in marketing

Broad generalizations regarding research in a discipline tend always to be faulty and unfair for any discipline tends to harbour at any time several different strands of research in partial contrast. Marketing is certainly no exception. Being aware of that, I will, nevertheless, start with a generalization. Much of the research in marketing appears to focus on management practices of sellers (organisations) and that often with normative ambitions. It has been so over the last few decades. There are important exceptions but a glance at the literature seams to confirm the marketing management focus.


It has not been always so. Until the turn in the discipline to the marketing management in the 60s much of the research has been about the way markets or market systems function. There is nothing wrong in the turn to management practices in marketing or the normative ambitions if it works, that is if it offers effective guidance for marketing practice. Observations of some practices that produce results need not to be based on consistent explanations or theories. “Scientific” marketing would require systematic explanations of why certain practices work and others do not. But then who cares about the scientific label. Indeed, such a concern may be pointless. However, those who advocate the “scientific grounding” have a point when they argue that systematic explanations (theories) make it possible to devise new practices rather then to rely on those traditionally in use. That at least seems to me the argument in other fields that relate to practice like management, for instance medicine and engineering.
What the turn to management practices in marketing research seem to have produced is weakening the research relevant for constructing theories of market. Apparently this has been left to others, economists and sociologists, and their theories and related assumptions have been taken when needed. It raises the issue of whether we have workable theories of markets for the purpose of marketing that is of taking actively part in the working of the market. However we answer this question, there are few doubts that we might have use for a theory of markets. If I do not misread the state of the current research in marketing it also seems to me that the interest in the theory of markets is increasing (e.g. Buzzell 1999, Hunt 2002, Venkatesh 1999, Levy 2002).
Theories, especially of the complex phenomena, are not free from the perspective in which we approach it. The market-as-network, or rather the institutional theory of the markets, seems fruitful for the relation to practice. It seems to yield fragments of a theory that appear promising. There are a few considerations on how it can be taken further. One is that the empirical research needs to be paralleled by more intense effort to theory construction. It also implies that some of the empirical research needs to be devoted to more systematic testing of the hypothesis and postulates resulting from the theory building effort. In turn that would require formulating of hypothesis that are broader than what we currently see, that is hypothesis deduced from empirical observations regarding some, more or less restricted, aspects of market and practices in market conduct. Another consideration regards the reach of the institutional perspective. The perspective appears fruitful and resulting explanations are supported by the empirical finings that regard inter-organisational markets (business-to-business), but there are also signs it can be extended to other markets. Such an extension requires testing whether it yields workable explanations for other types of markets. There seem to be several signs that it might.
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1 Swedberg credits Wayne Baker (1981) for using the notion in the title of this Ph.D. dissertation and it has been used by several authors in marketing, e.g. Johanson & Mattsson (19..)




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