Why do firms exist?

Why do firms exist? Seems like a pretty simple question right. However, it’s something I’ve never thought about. Turns out there is a simple answer.

Host-Company-Logos_Final Firms arise because of market failure. The market despite its efforts is not able to achieve efficient outcomes. It lacks the coordination (of sourcing and deploying resources) that organizations can achieve. Firms exist to solve hard problems. This is how they add value and why we pay them for it.



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