The firm is the main actor in economic life. To understand what it is for, you should first answer a few questions, namely, what is a firm and how it exists.
A firm is an organization that is owned by someone. It is located at a certain address, has a bank account, is endowed with the right to conclude contracts, and can also act in court both as a plaintiff and a defendant. It is known that the mechanism of market coordination itself has a number of indisputable advantages both from the point of view of the whole society and from the point of view of an individual consumer. For what reasons does the economy not exist as a “continuous” market, where everyone could be an independent mini-firm? Economic agents in the market are equal, and the distribution of power within the firm is uneven; the behavior of all participants in the market is determined by price signals, when, like inside the company, command signals operate; within the firm, deliberate planning serves as the regulator, and competition in the market. These examples show that within the framework of the firm, the so-called “visible hand” is nothing more than management and administrative control. The concept of the so-called "transaction costs" will help explain the internal structure and the necessity of the existence of firms. At one time, R. Coase was able to prove that the market mechanism does not cost society free of charge, and sometimes requires quite impressive costs. So they are called transactional, and they arise in the process of establishing relations between market agents. Imagine the economy as a homogeneous, continuous market in which only individuals, that is, individual agents, operate. This market model entails a large number of transaction costs for one simple reason, namely countless micro-transactions. No matter how strongly the division of labor is, any promotion of a product, even the smallest, from one commodity producer to another is accompanied by measurements of quantity and quality, negotiations on its value, measures of legal protection of the parties, and the like. Just think about what the transaction costs would be with such a market model. Yes, they are simply colossal, and as a result, refusal to participate in the market exchange would be the only correct option. Transaction costs are the reason that you have to constantly look for some kind of technical and organizational means that will reduce these same costs. And the firm is just that way. Its meaning is to suppress the price mechanism and replace it with a system of administrative control. Within the firm, search costs are significantly reduced, the need for constant renegotiation of contracts disappears, and economic relations become stable. In other words, in a world where there are no transaction costs, firms are not needed. And at the moment such a market model does not exist.
