“The limit to the size of the firm is set where its costs of organizing a transaction become equal to the cost of carrying it out through the market. This determines what the firm buys, produces, and sells. As the concept of transaction costs is not usually used by economists, it is not surprising that an approach which incorporates it will find some difficulty in getting itself accepted. We can best understand this attitude if we consider not the firm but the market.”

1960s-1980s, "The Firm, the Market, and the Law" (1988)

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Ronald H. Coase19

British economist and author 1910–2013

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“Why… are there any market transactions at all? Why not all production carried on by one big firm?… First, as a firm gets larger, there may be decreasing returns to the entrepreneur function, that is, the costs of organizing additional transactions within the firm may rise… Second, it may be that as the transactions which are organized increase, the entrepreneur fails to place the factors of production in the uses where their value is greatest, that is, fails to make the best use of the factors of production… Finally, the supply price of one or more of the factors of production may rise, because the "other advantages" of a small firm are greater than those of a large firm.”

Ronald H. Coase (1910–2013) British economist and author

Source: 1930s-1950s, "The Nature of the Firm" (1937), p. 394-5

“The question always is, will it pay to bring an extra exchange transaction under the organizing authority? At the margin, the costs of organizing within the firm will be equal either to the costs of organizing in another firm or to the costs involved in leaving the transaction to be “organised” by the price mechanism. Business men will be constantly experimenting, controlling more or less, and in this way equilibrium will be maintained. This gives the position of equilibrium for static analysis.”

Ronald H. Coase (1910–2013) British economist and author

Source: 1930s-1950s, "The Nature of the Firm" (1937), p. 404

“Transaction costs were used in the one case to show that if they are not included in the analysis, the firm has no purpose, while in the other I showed, as I thought, that if transaction costs were not introduced into the analysis, for the range of problems considered, the law had no purpose.”

Ronald H. Coase The Nature of the Firm

Ronald H. Coase (1988). "The Nature of the Firm: Influence." Journal of Law, Economics, and Organization 4 (No. 1, Spring): 33—47. p. 34; as cited in Eggertsson (1990; xiii)
1960s-1980s

“Outside the firm, price movements direct production, which is co-ordinated through a series of exchange transactions on the market. Within a firm, these market transactions are eliminated and in place of the complicated market structure with exchange transactions is substituted the entrepreneur-coordinator, who directs production. It is clear that these are alternative methods of coordinating production. Yet, having regard to the fact that, if production is regulated by price movements, production could be carried on without any organization at all might we ask, why is there any organization?”

Ronald H. Coase (1910–2013) British economist and author

Source: 1930s-1950s, "The Nature of the Firm" (1937), p. 388

“The size of a firm influences its competitive policies in a number of ways. In the first place the scale of its purchases and sales relative to the total volume of transactions in the firm's market is one indication of the extent of its market control. Taken in conjunction with other data it may throw a good deal of light on price and production policies. Certain authorities, on the other hand, brush aside figures on the relative size of firms as irrelevant and emphasize the decisive importance of the elasticity of the firm's demand curve. 3 It would no doubt be extremely convenient if economists knew the shape of individual demand and cost curves and could proceed forthwith, by comparisons of price and marginal cost, to conclusions regarding the existing degree of monopoly power. The extent to which the monopoly theorists, however, refrain from an empirical application of their formulae is rather striking.”

Edward S. Mason (1899–1992) American economist

Source: "Price and production policies of large-scale enterprise," 1939, p. 62

“The circular-flow diagram offers a simple way of organizing the economic transactions that occur between households and firms in the economy. The two loops of the circular-flow diagram are distinct but related. The inner loop represents the flows of inputs and outputs. The households sell the use of their labor, land, and capital to the firms in the markets for the factors of production. The firms then use these factors to produce goods and services, which in turn are sold to households in the markets for goods…”

N. Gregory Mankiw (1958) American economist

N. Gregory Mankiw, Brief Principles of Macroeconomics. 2011, p. 24-25
2000s -

“Remember, every business firm, like even a mom and pop grocery store, is a market imperfection. A firm is defined in economic theory as a market imperfection introduced to deal with transaction costs. And the sort of theory is that the imperfections, the firms, are kinda like little islands in a free market sea. But the problem with that is that the sea doesn't remotely resemble a free market, and the islands are bigger than the sea; so that raises some questions about the picture. But these market imperfections, like a firm, or a transnational corporation, or a strategic alliance among them, this is a form of administering interchanges. And there's a real question about whether we want to accept that. Why, for example, should the international socioeconomic system, or for that matter our own society, be in the hands of unaccountable private tyrannies? That's a decision, it's not a law of nature.”

Noam Chomsky (1928) american linguist, philosopher and activist

Talk titled "U.S. Foreign Policy in a Globalized World" at Johns Hopkins University, Maryland, March 13, 2000 https://web.archive.org/web/20021220030406/http://www.gseis.ucla.edu/faculty/kellner/ed270/multimedia.html. <br class="br">Quotes 2000s, 2000

“Markets are institutions that exist to facilitate exchange, that is, they exist in order to reduce the cost of carrying out exchange transactions. In an economic theory which assumes that transaction costs are nonexistent. markets have no function to perform, and it seems perfectly reasonable to develop the theory of exchange by an elaborate analysis of individuals exchanging nuts for apples on the edge of the forest or some similar fanciful example. This analysis certainly shows why there is a gain from trade, but it fails to deal with the factors which determine how much trade there is or what goods are traded.”

Ronald H. Coase (1910–2013) British economist and author

1960s-1980s, "The Firm, the Market, and the Law" (1988)

“Because internal organization experiences added bureaucratic costs, the firm is usefully thought as the organization of last resort: try markets, try hybrids (long term contractual relations into which security features have been crafted), and resort to firms when all else fails”

Oliver E. Williamson (1932) American economist

compatatively
Oliver E. Williamson (1999, p. 1091) cited in: Steve Cropper (2008) The Oxford Handbook of Inter-organizational Relations. p. 355.

“This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the 'separation and control' issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears the costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.”

Michael Jensen (1939) American economist

Source: "Theory of the firm: Managerial behavior, agency costs and ownership structure", 1976, p. 305 Abstract

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Ronald H. Coase19

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