In Either Market or Hierarchy, But not in Both Simultaneously: Where Strong-Tie Networks are Found in the Economy

I integrate several literatures on how networks relate to firms and markets. While the logic of strong ties (based on mutual goodwill, trust, and commitment) is distinct from the style of interaction classically associated with hierarchical firms and free markets, such ties in fact depend on the legal environments constituted by firm and market. A key role is played by credible commitments to refrain from exercising rights to control others and exit relationships with them. But since such commitments to employees conflict with commitments to contractors, strong ties may be prevalent internally or externally, but not in both simultaneously.