Institutional logics

The competing logics approach directs the attention to the possibility of several logics affecting a particular setting through divergent institutional pressure, where the logics may compete or/and contradict each other. The fairness of prices and accounting calculations could therefore be interpreted through the enactment of different institutional logics. The institutional logic perspective places actors and their use of reference points, their way of legitimizing and arguing for the fairness of certain prices, at the center in understanding how prices are

perceived, negotiated and set. Much focus in the literature has been on defining the specific logics and uses these logics to explain practice variation. The concept practice is used to link broader institutional structures to individual actions: ‘Practices refers to forms or constellations or socially meaningful activity that is relatively coherent and established’ (Thornton et al., 2012;

128). According to Thornton et al. (2012) activities involve acts that are generally devoid of deeper social meaning such as pounding a nail, whereas the practice of professional carpentry provides meaning to a set of activities that in isolation are banal (Thornton et al., 2012; p. 129).

In this sense yield management is an important practice whereas the specific activities of investigating capacity levels and alternative sales opportunities are activities that in isolation are rather meaningless. Thornton et al. (2012) define institutional logics as:

“Institutional logics represent frames of reference that condition actors’ choices for sense making, the vocabulary they use to motivate action and their sense of the self and identity. The principles, practices, and symbols of each institutional order differentially shape how reasoning takes place and how rationality is perceived and experienced’ (Thornton et al. 2012, p. 2).”

The institutional logics approach draws on all the three institutional pillars - the regulative, the normative, and the cultural cognitive – which has dominated institutional analysis, and indicate that they are interrelated.¹⁰ Institutional theory stresses the importance of cultural-cognitive elements of institutions. (Scott, 2008; p. 57), and an important feature of the cultural-cognitive element is the creation of a collective identity among a group of people, who interpret episodes and actions in the same way. These identities are shaped by the institutional environment, and the identities form their own institutional logic (Thornton and Ocasio, 2008; p. 111).

The competing logic perspective holds that while individual and organizational actors may seek power, status, and economic advantage, the means and ends of their interests and agency are both enabled and constrained by prevailing institutional logics. This assumption has been

10 Giddens (1984, p. 28) emphasizes for example that the separation between the communication of meaning related to structures of signification (cognitive) and the operation of normative sanctions is separable only analytically. Giddens further states that the idea of ‘accountability’ “in everyday English gives cogent expression to the intersection of interpretive schemes and norms”

(1984, p. 30). Being accountable for one’s action is both to reason for them and ‘justify’ them based on normative grounds. Scott (2008, p. 60) argues with Berger and Luckman (1967, p. 92-93) that legitimation gives ‘moral dignity to cognitive structures’.

Similarly, the ability to regulate and thereby the sources of authority cannot be seen as separated from legitimation and cognitive structures (Burns and Scapens, 2000; Scott, 2008; Giddens, 1984, p. 31-32). Power and agency and hence the ability to regulate others are embedded in the institutional context.

labeled embedded agency, and is one of the main characteristics of the competing logic perspective (Thornton and Ocasio, 2008). According to this view, while power and politics are present in all organizations ‘the sources of power, its meaning, and its consequences are contingent on higher-order institutional logics (Thornton and Ocasio, 1999; p. 802). Mattimoe and Seal (2011) have illustrated that yield management on the one hand constitute a new identity and hence new resources of power for some, and on the other hand is the precondition for this agency.

The institutional logics perspective thus departs from earlier neo-institutional theory’s idea of isomorphism that indicates a harmonization of the institutional environment. Friedland and Alford (1991) were especially critical towards those branches of economic theory (public choice, agency theory, etc.) that see society as increasingly consisting of instrumental rational individuals, who exchange goods in a capitalist market.¹¹ The reservation towards economic theory’s idea that society consists of instrumentally calculating individuals is repeated in Thornton et al. (2012): “…the institutional logics perspective is fundamentally about how to specify the countervailing and moderating effects on self-interest and rationality and, for that matter, to realize…the professions cannot be completely dominated by markets”. We suggest that the sensitivity towards variation instead of harmonization makes institutional logics suitable to investigate variation in pricing and yield management.

As a somewhat logical succession of the original critical approach towards the economic rationalization of society, the focus in many studies has been on how a general economic business logic (sometimes called a market logic) is invading many spheres of society and collides with other identities and logics. Thornton & Ocasio (2008, p. 108) argues e.g. that the invasion of the market logic during the last 30 years is found in several studies in various settings, including health care (Scott et al. 2001), in higher education publishing (Thornton &

Ocasio, 1999), in equity markets (Zajac & Westphal, 2004), and in public management (Meyer

& Hammerschmidt, 2006), and often this invasion has resulted in conflict.

The study of the link between different logics enactments of practices has been prominent in the literature. Townley (2002) e.g. illustrate the clash in cultural institutions between cultural and

11 According to Friedman and Alford (1991) capitalist society consists of several institutional orders – capitalist market, bureaucratic state, nuclear family, and Christian religion – which shape the individual preferences.

the economic logic’s enactment of the practice of performance management. Ezzamel et al.

(2012), examine budgeting practices in UK schools and identify three institutional logics: A business logic according to which schools should operate efficiently and engage in competition with other schools; a governance logic that emphasize the political accountability of schools;

and a professional logic that relates to the expertise and norms of the teaching profession.

Ezzamel et al. (2012) show that these logics enact the budgeting practice differently. While the illustration of a conflict between a business logic and other logics is helpful in sketching key differences between general logics in sectors such as art institutions and schools, the sharp contradiction between business logics and other logics seem less relevant when analyzing pricing where a key focus is likely to be on “business” but what business means may be shaped by the competing logics identities and way of justifying their actions. In a pricing context logics are therefore likely to be hybridized (Kurunmäki, 2004).

Recently there has been much attention on how different competing logics can functions together and reduce conflict (Pache and Santos, 2013; Amans et al., 2015; Chenhall et al., 2013;

Besharov and Smith, 2014; Reay and Hinnings, 2009). In this literature there has also been focus on how the specific practices can foster compromise between competing logic. Pache and Santos (2013, p. 975) illustrate how prices can be set at a compromising level. In microfinance organizations are often caught between the banking logic demand to set interest rates at a level that maximizes profit and the development logic demand to set low interest rates to reduce the financial pressure from poor customers. A compromise is to set the interest rate somewhere between the high banking logic rate and the low development logic rate.

Carlsson-Wall et al. (2016) identify two institutional logics - a business logic and a sports logic - in the soccer industry. The sports logic is associated with institutional demands for success in sports, whereas business objectives relate to demands for financial performance. According to Carlsson-Wall et al. (2016) the logics are sometimes in conflict and sometimes not, and performance management systems is a practice that sometimes can mitigate conflicts between two institutional logics. Amans et al. (2015) in their study of budgeting in French not-for-profit theatres identify the artistic logic and management logic, two logics that often are in conflict.

However, sometimes and under certain funding systems budgeting actually help the theatres to achieve artistic ends, and the budget helped to reduce conflicts in an organizations exposed to multiple logics. Our case study does somewhat surprisingly not illustrate a compromise between

two logics, even though both accept yield management as a rational pricing practice. The conflicts arise due the difference in enactment of reference points, which are embedded in the logics identities and the way they justify their actions, which in Air Greenland provided little room for compromise.

In summary we have highlighted that fairness is central in price setting, that the literature tends to view the reference points for fairness as either profit or costs. The competing logics challenge the one dimensional analyses of fairness and that competing logics in pricing context are likely to be hybridized in the since that the enactment of what fair prices are is done by mobilizing economic and business argument but that these arguments are embedded in the actor’s identities and way of justifying their actions. In the following the methods used to analyze fairness and competing logics is presented.