In 1991, Coase won the misnamed Nobel Prize for economics, largely on the basis of two articles. In one of these, Coase explored the nature of the firm, "distinguishing mark" of which is the "the suppression of the price mechanism."
Coase, Ronald. 1937. "The Nature of the Firm." Economica, 4: 386-405, p. 389.
To some, at first glance, such words might suggest a radical Marxist ideology -- "suppressing the price system". In fact, Coase saw something that earlier economists had overlooked. Business transactions between firms are based on prices, but, within a business orders and procedures generally determine how things are done, not prices.
At the same time, a business can theoretically contract out virtually everything it does. A major corporation could consist of a telephone, an Internet connection, and a bank account. It could rent its office and make contracts with employees on a daily basis. It could pay other companies to produce and market its goods.
No major company has ever gone that far because of the difficulty of specifying everything it needed in contracts. Yet, in the new age of neoliberal worship of markets some corporations have actually made great strides toward creating a totally market-driven business. A few corporations have even taken to using prices within the firm in an effort to make each division accountable.
More at
http://michaelperelman.wordpress.com/2009/07/09/contracting-out-or-boeing-bites-itself-on-the-butt/
-- Michael Perelman Economics Department California State University Chico, CA 95929
530 898 5321 fax 530 898 5901 http://michaelperelman.wordpress.com