The V-Network Form: Economic Organization and the Theory of the Firm

In this paper, we characterize what we call the "V-network form," a vertical organization distinct from a horizontal network of firms, in which a "hub-firm" organizes and coordinates regular essential operations such as provision, production and distribution between legally independent entities. The hub-firm's economic problem is the provision of incentives to the parties in the network while coordinating their complementary capabilities or competences without recourse to equity ownership. We discuss the relation of this organizational form to the "firm versus market" typology and stress that the V-network form is not a "hybrid form." We argue that valuable insights for the theory of the firm may be gained from a thorough theoretical analysis of the V-network form. In particular, some of these insights may be used as an attempt to clarify the terms of the current debate between the contractual and competence theories of the firm. The approach also inevitably raises questions related to the legal apprehension of the V-network firm