Robertson's Analogy: Firms as Islands of Conscious Power

Coase's Theory of the Firm: The Make-or-Buy Decision

A manager at a manufacturing company needs a new inventory tracking system. She considers two options: 1) assigning the project to her in-house team of salaried software developers, or 2) contracting with an external software firm to build the system for a negotiated price. Which statement best analyzes the fundamental difference in how economic activity is organized between these two options?

Analyzing a Shift in Business Organization

Comparing Methods of Economic Organization

Evaluating a Shift in Business Organization

For each of the following business activities, determine whether it is primarily an example of coordination through an internal hierarchy or coordination through a market mechanism.

A small graphic design agency initially paid freelance designers on a per-project basis. To handle a growing workload and ensure consistent quality, the agency hired several designers as full-time, salaried employees who now receive their assignments from a creative director. This change represents a shift towards greater use of the market's price mechanism to coordinate the firm's design activities.

Justifying Internal Production

Strategic Decision for a Tech Startup

A global coffee shop chain wants to ensure that a customer receives the exact same quality of coffee, store ambiance, and customer service whether they are in Tokyo, London, or New York. To achieve this high degree of consistency, which approach to organizing its operations is most effective?

A large automobile manufacturer designs and produces the majority of its components—from engines to door handles—within its own divisions. A smaller, newer competitor, however, purchases most of its components from a wide array of independent, specialized suppliers. From an economic organization perspective, what is the primary advantage the larger manufacturer gains by using this internal, hierarchical approach?