Consumer Market Organization With The Enterprise System

This doctoral thesis includes Part I and Part II. Part I is a literature review, which critically assesses the modern theories of the firm; and Part II is the formal discussion of this paper.In the literature review, both the theories on the existence of the firm and the theories on inner organization of the firm will be investigated respectively. We argue that the appropriate approach to the theory of the firm is to adopt the analytical framework pioneered by Coase (1937) and Cheung (1983). In other words, it is transaction costs, not the unverified variables such as "authority" or "opportunism", should be viewed as constraints to explain various institutional arrangements in the real world. We hold that, only by doing in this way, can the existence of the firm or other institution arrangements be justified in the neoclassical price theory.In Part II, we have three objectives. First, we will introduce and discuss what we called the means of organizing "consumption" through the market (OCTM). Compared with the means of organizing "consumption" through the firm, OCTM is a way in which the consumer obtains final products not from an agent (or a firm), but through contracting (or outright transacting) with various factor owners. According to Coase (1937), it is obvious that OCTM involves higher "costs of discovering the relevant prices" than those of organizing consumption through the firm. We will offer a case study to show that these costs can be reduced if certain institutional arrangements appear. Due to these institutional arrangements, it may be unprofitable to establish a firm. But why is it unprofitable if according to the theories the firm emerges to supersede the price mechanism in order to save transaction costs? The reason is that organizing consumption through the firm involves positive transaction costs too. In some extreme circumstances, OCTM may appear in the economy when the transaction costs of organizing consumption through the market are lower than those through the firm. In other words, the Coasian firm does not necessarily emerge under any situations if there is alternative institutional arrangements.Secondly, this paper will deduce an indirect pricing theory of certain valuable and intangible knowledge based upon the analytical framework we built above. As we know, transacting intangible knowledge is more difficult and costly than any other tangible goods. But in the neoclassical theory, the firm is basically viewed as a mechanism of converting input into output. Following this viewpoint of the firm, if the costs of pricing intangible knowledge is too high, or if transacting this intangible goods between its owner and the buyer is so difficult, it tends to be economical to forgo any direct pricing of this intangible knowledge as an input, and to price the tangible its output instead. In this sense, the firm not only can be interpreted as a result of saving transaction costs in general terms, but also can be interpreted as an indirect pricing mechanism of intangible knowledge.Finally, we will provide some rationale for the existence of Schumpeter's entrepreneur in the new institutional theory of the firm. In his famous work, Schumpeter (1934) defines the entrepreneur as an agent to innovate. But it is easy to see in the literature that there is no Schumpeter's entrepreneur in the modern theory of the firm. The reason, we think, is that those literatures did not play too much emphasis on the high costs associated with transacting the idea of product innovation. The modern theories of the firm are rested on two assumptions, in which either the number and quality of the product is fixed, or the transaction costs of intangible idea is zero. If it is the former in question, then they do not need to deal with product innovation in the firm. The firm has only a monitor, an agent, or a manager, whose main task is to save transaction costs according to the theory. If it is the latter, then they assume that all existing firm can buy any creative ideas from the open market. Although the dy...