Theory of the firm

A firm is defined in economic theory as a market imperfection introduced to deal with transaction costs. And the sort of theory is that the imperfections, the firms, are kinda like little islands in a free market sea. But the problem with that is that the sea doesn't remotely resemble a free market, and the islands are bigger than the sea.

— Theory of the firm

We believe that, in order to understand contemporary economic decision making, we need to supplement the study of market factors with an examination of the internal operation of the firm – to study the effects of organizational structure and conventional practice on the developments of goals, the formation of expectations, and the execution of choices.

— Theory of the firm