The Nature Of The Firm1. What is the main argument of the article. 2. Discuss the stand of Coase on why firms go for partnership rather than contracting. Identify what type of the firm does your sponsored OJT firm? in accordance to the rationale of the Theory of the firm 3.Choose any firm you know and relate this to the COASE theory. (State their Vision and Mission , their formulation of the business process and their ultimate goal as a firm.
Answer (1)
The Nature of the Firm – Ronald Coase 1. Main Argument of the ArticleRonald Coase, in his 1937 article The Nature of the Firm, argues that firms exist because they minimize transaction costs associated with using the market for every exchange. Instead of contracting out every task, firms internalize transactions to reduce costs related to searching for suppliers, negotiating contracts, enforcing agreements, and dealing with uncertainties. In short, firms emerge when the cost of organizing transactions internally is lower than the cost of using the open market. 2. Coase’s Stand on Partnerships vs. Contracting Coase explains that firms choose partnerships rather than pure contracting because partnerships help reduce transaction costs and create stability. Contracts require constant renegotiation and enforcement, which can be costly and inefficient. In contrast, partnerships or long-term collaborations provide better coordination, trust, and resource sharing, leading to more efficient production. Identifying the Type of Firm for Your Sponsored OJT FirmBased on Coase’s rationale, your OJT firm can be categorized based on its structure Hierarchical Firm – If it organizes most activities internally, reducing dependency on external suppliers. Hybrid (Partnership-Based) Firm – If it collaborates with other firms for certain functions while maintaining internal operations. Market-Based Firm – If it relies mostly on contracts and outsourcing rather than internal organization. 3. Application of Coase's Theory to a Real FirmLet’s take Toyota as an example and relate it to Coase’s theory. Vision & MissionVision: "Creating a better future through innovative and sustainable mobility solutions." Mission: "To produce high-quality, affordable vehicles while focusing on environmental sustainability and continuous improvement." Business Process Formulation & Coase’s TheoryToyota balances internalization and outsourcing. While it manufactures key components in-house (to maintain quality and efficiency), it also works with a network of trusted suppliers (reducing costs of full in-house production). This aligns with Coase’s theory: Toyota minimizes transaction costs by integrating certain operations while outsourcing others strategically. Ultimate Goal as a Firm Toyota aims for efficiency, innovation, and sustainability, which is achieved through a structured balance between internal operations and external partnerships, just as Coase's theory suggests.
