http://online.wsj.com/article/SB10001424052748704476104575439723695579664.html?mod=googlenews_wsj
[David] good article indeed, it reminded me of something actually. It’s interesting to note that most of the theory of the firm, within microeconomics of the last century, comes from this founding article of Coase, nature of the firm, 1937, where he basically shows that firms exist because, despite the efficiency of the market (I don’t think that when he wrote the article, inefficiencies of markets were really theorized yet), it would be too expensive to meet offer and demand for every exchange that happens, for instance every interaction within a team that works on a project. This is what he calls the transaction cost, if my memory is correct. This is why it was more efficient to create an entity (the firm) where there is one set of rules that organizes things and inside which the market does not operate. The big question being, for people coming after Coase, where should be the border – i.e. what is supposed to happen within the firm and what is supposed to happen outside, in the market, therefore discussions on the ‘ideal’ (in terms of efficiency) size of a firm. The interesting stuff here for us, is to see how internet and more specifically, though humbly ;), companies such as ours with our decentralized and open model, challenge this corpus of theory, by using internet and transparency of information to drastically reduce the transaction costs and therefore question the ‘natural’ boundaries of a firm. There is a lot of interesting stuff for microeconomic students I think, if they have a look at this kind of initiative. We are soooo hot ;-)
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