Economist; Nobel Memorial Prize in Economic Sciences, 1991

Ronald Coase

Coase asked why firms exist at all, and answered with transaction costs: a firm grows until organising one more activity inside costs more than buying it in the market.

Essential reading: “The Nature of the Firm” (1937)
“The Problem of Social Cost” (1960)
Models in this guide: 1

No. 092Strategy & Enterprise
The Nature of the Firm (Transaction Costs)
Firms exist because using the market has costs; an activity belongs inside when organising it there is cheaper than buying it, so when those costs change, the boundaries should too.

The Nature of the Firm (Transaction Costs)