Coase's Contributions to the Theory of Industrial Organisation and Regulation

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Robson, Alex
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Veljanovski C.
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2015
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Ronald Coase’s analysis of the boundaries of the firm (1937b) and his examination of externalities (1960) – both of which were built upon the key concept of transaction costs – have implications for a range of topics in micro-economic theory and economic policy analysis.1 One obvious example from industrial organisation and antitrust that immediately comes to mind, but which Coase did not develop in any great detail, is the application of Coasean bargaining to the theory of corporate takeovers and mergers. Economies of scale, scope and sequence, ‘synergies’ (that is, positive externalities) and the reduction of transaction costs via vertical integration all figure prominently in modern explanations of merger and acquisition activity (see, for example, Betton 2008). Although Coase later stated that he had not written his 1937 paper with the intention of revolutionising microeconomic theory (Coase 1988d), transaction costs have today become a lens through which many economists view the commercial world. Transaction costs help organise one’s thoughts, and can be used as an aid to guide empirical analyses of real-life economic phenomenon. As he wrote (Coase 1998a: 73):

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Forever Contemporary: The Economics of Ronald Coase
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Banking, Finance and Investment not elsewhere classified
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