Coase - Price Mechanism And The Entrepreneur

8 Pages 2021 Words

Coase believed that it was important to enquire “why co-ordination is the work of the price mechanism in one case and the entrepreneur in the other”. How did Coase ultimately explain the choice between the alternatives? Using an industry of your choice illustrate how Coase’s theory of the firm helps explain the organisation of firms within that industry.


Introduction

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.


Price Mechanism & the Entrepreneur

The key to resolving the conflict between the independent price mechanism and managerial forms of co-ordination within the economic system is to interpret and understand the cost advantages and disadvantages of using the market, or command and control, to get things done.

Coase introduces the equilibrium concept in his 1937 paper by referring to Sir Arthur Salter’s model of the economic system. In this system, “supply is adjusted to demand… by a process that is automatic, elastic and responsive” (Coase 1937). The price mechanism allows for the economic assumption that firms are unnecessary, as the market is in a position to efficiently co-ordinate production without guidance or control. A primary method or conveying the operation of market co-ordination is to look at the concept of ‘perfect competition’, wher...