The Introduction of Automatic Switching into the Bell System: Market versus Institutional Influences

Abstract

In neoclassical economics, the postulated behavior of firm profit maximization is a comprehensive idea that subsumes important institutional details concerning management and organization. In accounting for the behavioral diversity of firms in the same industry, the common practice of deducing the incentive structure that decides the behavior of firms from the concept of market forces is ineffective. 1 Differences in the behavior of firms facing similar environments is strong evidence that institutional details are needed to account for why precisely defined factors located in the external environment do not uniquely determine the sensitivity of a firm to market stimuli. An idea forcefully articulated by adherents of evolutionary economics is that firms operate in changing environments where there is no simple correspondence between having a goal (engage in activities valued by the market) and the myriad possible ways of achieving it.2 According to Nelson and Winter [1982], the existence of firm-specific knowledge embedded in routines plays a major role in explaining differences among firms facing similar market parameters. A key characteristic of routines is that knowledge is tacit. In evolutionary theorizing, the intelligence behind successful adaptations to changing environments is reflected in organizational capabilities that emerge from the practice of routines.3 The