overall structure.During the Great Depres- how the insurance industry in the nineteenth sion of the 1930s,the largest corporations century expanded and contracted as regula- produced as many different kinds of products tors shifted their roles over time.Haveman as they could to continue to exist in such dis- Rao(1997)demonstrate similar processes mal business conditions. operating in the savings and loan industries. In addition to product differentiation,pro- Fligstein (1990)presents evidence that the ducers often seek to cooperate and to combine U.S.government played a major role in pre- with one another to reduce competitive pres-venting the cartelization and monopoliza- sure.In the old industrial organization litera-tion of American business at the end of the ture in economics,a small number of firms nineteenth century by using antitrust laws. dominating a market act to reduce compe-He also demonstrates that the federal gov- tition in that market.Challenger firms can- ernment played a role in closing down the not undercut the prices of their larger core 1960s merger movement by aggressively pur- brethren because the large firms can outlast suing conglomerate mergers.Dobbin(1994) any competitor in a price war.Podolny(1993),shows how government policies toward rail- a network theorist,terms this kind of struc-roads early on affected their organization in ture a status hierarchy.He studies how in-different countries.Dobbin Dowd(2000) vestment banks form such a hierarchy that is have documented how government played primarily held in place by the large size and an important role in railroads in the United prestige of the biggest banks.These banks States.Campbell Lindberg (1990)argue get the largest deals,and they reproduce their that property rights are at the heart of the place in that structure by being able to under-relationships between governments and firms cut their competitors if necessary.Fligstein (for a review of the sociological literature on (1996),in a more institutionalist vein,calls property rights,see Carruthers Ariovich this an incumbent-challenger structure.He 2004). argues that such structures get reproduced as The sociological view of relations among incumbents use their market power to sus- producers begs the question of who these pro- tain their advantage in a given market over ducers are and how they make production de- time. cisions.From the point of view of neoclassical Although producers may attempt to exert economics,whether producers are individuals market power through the creation of hier-or organizations matters little;what is impor- archies,this strategy has its limits.Govern-tant is the production function and the com- ments regulate competition(Ranger-Moore bination of capital and labor used in the pro- et al.1991,Dobbin Dowd 2000,Fligstein ductive process(Shepard 1970).Conversely, 1990,Haveman Rao 1997,Ingram Rao sociologists have long examined organizations 2004,Ingram et al.2005),in turn affecting as social structures.Some take the unitary or- the opportunities for firms to expand and ganization of the firm as a starting point,but survive.The role of government and law most agree that organizations have complex in the production of markets has been ac-internal dynamics that are important for or- knowledged by the population ecology,insti-ganizational form and for the strategies they tutionalist,and,of course,political economy use to solve the problems of competition and camps.These theory groups understand that exchange.They have pointed to competition governments can both open up opportuni-within the firm,culture,and power struggles, ties and set up constraints for markets.For in addition to environmental influence,as im- example,Hannan Freeman (1987)show portant to understanding a firm's strategy and how the legalization of union activities af- thus the structure of markets(Fligstein 1990, fected the founding and survival of those or- Ocasio Kim 1999,Pfeffer 1981,Pfeffer ganizations.Ranger-Moore et al.(1991)show Salancik 1978). ligstein·DauterANRV316-SO33-06 ARI 24 May 2007 10:6 overall structure. During the Great Depres￾sion of the 1930s, the largest corporations produced as many different kinds of products as they could to continue to exist in such dis￾mal business conditions. In addition to product differentiation, pro￾ducers often seek to cooperate and to combine with one another to reduce competitive pres￾sure. In the old industrial organization litera￾ture in economics, a small number of firms dominating a market act to reduce compe￾tition in that market. Challenger firms can￾not undercut the prices of their larger core brethren because the large firms can outlast any competitor in a price war. Podolny (1993), a network theorist, terms this kind of struc￾ture a status hierarchy. He studies how in￾vestment banks form such a hierarchy that is primarily held in place by the large size and prestige of the biggest banks. These banks get the largest deals, and they reproduce their place in that structure by being able to under￾cut their competitors if necessary. Fligstein (1996), in a more institutionalist vein, calls this an incumbent-challenger structure. He argues that such structures get reproduced as incumbents use their market power to sus￾tain their advantage in a given market over time. Although producers may attempt to exert market power through the creation of hier￾archies, this strategy has its limits. Govern￾ments regulate competition (Ranger-Moore et al. 1991, Dobbin & Dowd 2000, Fligstein 1990, Haveman & Rao 1997, Ingram & Rao 2004, Ingram et al. 2005), in turn affecting the opportunities for firms to expand and survive. The role of government and law in the production of markets has been ac￾knowledged by the population ecology, insti￾tutionalist, and, of course, political economy camps. These theory groups understand that governments can both open up opportuni￾ties and set up constraints for markets. For example, Hannan & Freeman (1987) show how the legalization of union activities af￾fected the founding and survival of those or￾ganizations. Ranger-Moore et al. (1991) show how the insurance industry in the nineteenth century expanded and contracted as regula￾tors shifted their roles over time. Haveman & Rao (1997) demonstrate similar processes operating in the savings and loan industries. Fligstein (1990) presents evidence that the U.S. government played a major role in pre￾venting the cartelization and monopoliza￾tion of American business at the end of the nineteenth century by using antitrust laws. He also demonstrates that the federal gov￾ernment played a role in closing down the 1960s merger movement by aggressively pur￾suing conglomerate mergers. Dobbin (1994) shows how government policies toward rail￾roads early on affected their organization in different countries. Dobbin & Dowd (2000) have documented how government played an important role in railroads in the United States. Campbell & Lindberg (1990) argue that property rights are at the heart of the relationships between governments and firms (for a review of the sociological literature on property rights, see Carruthers & Ariovich 2004). The sociological view of relations among producers begs the question of who these pro￾ducers are and how they make production de￾cisions. From the point of view of neoclassical economics, whether producers are individuals or organizations matters little; what is impor￾tant is the production function and the com￾bination of capital and labor used in the pro￾ductive process (Shepard 1970). Conversely, sociologists have long examined organizations as social structures. Some take the unitary or￾ganization of the firm as a starting point, but most agree that organizations have complex internal dynamics that are important for or￾ganizational form and for the strategies they use to solve the problems of competition and exchange. They have pointed to competition within the firm, culture, and power struggles, in addition to environmental influence, as im￾portant to understanding a firm’s strategy and thus the structure of markets (Fligstein 1990, Ocasio & Kim 1999, Pfeffer 1981, Pfeffer & Salancik 1978). 116 Fligstein · Dauter Annu. Rev. Sociol. 2007.33:105-128. Downloaded from www.annualreviews.org Access provided by Shanghai Jiaotong University on 02/04/15. For personal use only