Based predominantly on the work “The Nature of the Firm” (1937), in which R.H. Coase explored, in depth, the reasons for the emergence of organisational management through entrepreneurialism in the economic environment, this paper aims to outline and explain the concept of co-ordination of the factors of production, and the place of the price mechanism and role of the firm within the economic system.

We will also attempt to highlight the threshold of the price mechanism and entrepreneurial co-ordination, and explain that upon which the choice between alternatives is based, whilst endeavouring to apply our conclusions towards practical example from Ireland’s modern-day industrial environment.

The key to resolving the conflict between the independent price mechanism and managerial forms of co-ordination wit

…In order to carry out a market transaction, it is necessary to discover who it is that one wishes to deal with, to conduct negotiations leading up to a bargain, to draw up the contract, to undertake the inspection needed to makes sure that the terms of the contract are being observed, and so on. (Coase 1960)

While the firm exists to co-ordinate the transaction processes of the market at a lower cost than that quoted by the price mechanism to acquire the good/service over the open market, we have established that the ability of the firm to ‘out-perform’ open-market operations is limited.

The object of a business organisation is to reproduce the conditions of a competitive market for the factors of production, within the firm, at a lower cost than the actual market. But, if a firm exists to reduce costs, then why do market transactions remain at all?

Some topics in this essay:
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