On Firms

Sanjukta Paul, University of Michigan Law School


This paper is about firms as an instance of economic coordination, and about how we think about them in relation to other forms of coordination as well as in relation to competition and markets. The dominant frame for thinking about firms--which has strongly influenced contemporary competition law as well as serving as a vital adjunct to the fundamental concepts of neoclassical price theory that guide many areas of law and policy--implicitly or explicitly explains and justifies the centralization of both decision-making rights and flows of income from economic activity on productive efficiency grounds. We have very good reasons to doubt this approach as explanation, because power perpetuation by incumbent control groups is often a better explanation for such centralization (of coordination rights and income flows) than productive efficiency. We should also be skeptical of the approach as justification because it often either takes as given, or assumes away, contested legal rules that also affect productive efficiency outcomes; because the conception of productive efficiency it uses is impoverished; and because the nature of competition and markets themselves give us no good reasons to limit the normative bases for our legal choices about economic coordination to productive efficiency alone.