Coase's Nature of the Firm

Coase's Nature of the Firm is an economic theory that explains why companies exist rather than just relying on market transactions. Ronald Coase argued that firms are formed to reduce transaction costs—expenses incurred when negotiating and enforcing contracts. By organizing production within a firm, businesses can streamline operations, coordinate efforts, and avoid the inefficiencies of constant bargaining and agreements with outside parties. This helps firms operate more effectively, allowing them to maximize profits and allocate resources more efficiently in the marketplace.