The Essence of the Modern Corporation: Markets, Strategic Decision‐Making and the Theory of the Firm

Abstract

Following Coase’s fundamental concern with planning, in this paper we highlight strategic decision‐making as important for distinguishing the essence of the modern large corporation. It is consistent with industrial organization analysis of industries yet provides a novel starting point for the theory of the firm. We suggest different boundaries to the organization compared with those identified elsewhere, and whereas others peering into the black box of Walrasian theory merely see more of what is on the outside, we see transactions within and without the firm as fundamentally different. The analysis recognizes Pareto inefficiencies but concludes with an optimistic vision for economic policy.