Innovation and business competitiveness

Innovation and business competitiveness

Have you ever stopped to think about what is the reason for the growth of businesses? Why there is no single large company in each sector or why companies are not all the same size?
These issues permeate the economic studies for a long time, the search for the logic of the behavior of firms, markets and relations between them.

The theories of the firm have different approaches and comprise a large field of economics. Let's start with a brief passage through the issues of the theories of the firm that are most relevant to this discussion on innovation.

The liberal idea of the rational market that fits through an "invisible hand" and allows a perfect competition appeared in the early analysis of firms by neoclassical theory, ignoring the importance of companies such as active players in the market.

In this sense, the company had the function of receiving input, making the processing and offer products. The analyzes gave up, therefore, about the differences between the efficiencies obtained by competing organizations. Later, tended to consider the effect of economies and diseconomies of scale as the structure of the firm. That is, to some extent a company can reduce its unit cost of production due to the existence of spare capacity (economy), but at some point their market demand becomes positive impact on the price of its inputs and starts to be increased in the variable costs and therefore, the unit cost (diseconomy). (TIGRE, 1998) Another view held that the firm appears to streamline transaction costs since some features are cheaper to be obtained within the firm than the market.

For other resources, it is cheaper to get them directly from the market in a decentralized manner. These cases would not be feasible for the firm to incorporate them internally. Due to the development of this theory in the remarkable article "The Nature of the firm", Ronald Coase (1937) was winner of the Nobel Prize in economics.