Source: EconLog
by Pierre Lemieux
“The distinction between the firm and the market is easy to understand for someone who has read Ronald Coase’s seminal article ‘The Nature of the Firm’ (Economica, 1937). It is difficult to get very excited about the idea of ‘running’ a firm like a market. Why does the hierarchical firm exist within the free market? Coase asked. He argued that the raison d’être of the firm is to avoid the transaction costs of using the market, that is, the costs of finding subcontractors (instead of hiring employees), discovering relevant prices, negotiating and signing multiple contracts for every project, and trying to forecast all related market conditions. When circumstances are such that these transaction costs are or become higher than the cost of organizing and managing a firm, the entrepreneur or his investors will choose the latter.” (05/14/25)
https://www.econlib.org/the-firm-disco-corp-and-ronald-coase/