Why are there firms and not just markets? Rethinking Ronald Coase’s relevance in a world going virtual

Abstract

Why do companies exist? That is the question that should alarm an economist since it calls into question the coherence of the neoclassical model: companies coordinate and organize the factors of production in a centralized way, just like the market, which by default would always do it better. Ronald Coase has been the standard to respond: the balance between transaction costs and organizational costs within the company determine whether you alternatively use the company or the market to coordinate economic resources. They are perfect substitutes. However, is that argument always valid and is it particularly valid in an increasingly digitalized economy? This is the question that will guide this essay; Therefore, we will review why or purpose of the company, the alternative explanations for its existence, the different mutations that companies have adopted since the period of flexibility in the 80s and the technological changes associated with the digitalization of society. With this overview, it is possible for us to relativize Coase’s proposal and suggest criteria used in disciplines that are related to understand the company.