The traditional theory explains the behavior of the firm by the desire to maximize profits. This theory is based on two assumptions:

♦ the owners carry out day-to-day operational control and management of the firm's affairs;

♦ their only desire is to maximize profits.

The theory substantiates the thesis of profit maximization when marginal cost and marginal revenue are equal: MC = MK

However, this theory faces several difficulties in practice. First, firms do not use marginal analysis to evaluate or forecast their performance. Indeed, the calculation of marginal cost and especially marginal revenue is rather difficult and is complicated by ignorance of the real demand curve for the firm's products, the elasticity of this demand with respect to prices and incomes. Despite the fact that many large firms organize expensive market research, the information received cannot be considered 100% reliable and sufficient. The same difficulty is the estimation of future income and costs. Finally, it is almost impossible to predict the actions and reactions of other firms and assess the consequences of their activity.

It is necessary to pay attention to the fact that in the modern market economy there is a deep separation of property rights from management rights and, with the exception of small sole proprietorships, owners do not engage in operational management, attracting professional managers for this.

All these facts formed the basis for an anecdote about the effectiveness of the traditional theory of the firm, which is given by some Economics textbooks: “A car driver periodically throws small pieces of paper out the window. His friend wonders why he does it.

■- I scare away elephants, - he answers.

But there are no elephants here, - the friend is amazed.

See how wonderful it works! - proudly said the driver, throwing another piece of paper out the window.

Jokes are jokes, but the traditional theory is not in the best way explained the problem, which led many economists to offer alternative theories that derive the behavior of the firm from completely different premises and other goals.

Another version of this theory is the evolutionary concept of the firm. Its essence boils down to the fact that the company evolves under the influence of external and internal factors, and decisions are made based on the characteristics of the internal organization and the traditions that have developed in the company. At the same time, the firm does not have a single criterion for the optimality of decision-making and its behavior varies depending on the market situation, established traditions and historical experience of the firm. (1, p. 139).

Let us now consider several approaches to explaining the emergence and development of firms. First, the firm is an organizational and economic system through which production processes are carried out to create goods and services. Secondly, in socio-economic terms, firms are a community of people united by common motives for action. Thirdly, the firm is a set of mutually beneficial contracts. The last definition is interesting because the company is presented not as an association of people, machines and technologies, but as a mechanism for the implementation of market relations, which are based on the costs of business transactions - transactions. (2, p. 90)

R. Coase, winner of the 1991 Nobel Prize in Economics "for discovering and clarifying the significance of transaction costs and property rights for the institutional structure and functioning of the economy", showed that the use market mechanism costs society not for free, but requires certain costs, called transaction costs. This approach allows us to analyze both market and intra-company economic relations.

Intra-company economic relations (intra-company transactions) cover the multifaceted activities of the company in organizing production, rational use of production factors.

Market (external) and intra-company transactions are closely related to each other, and the ratio between them affects the optimal size of the firm, otherwise it would be possible to consider the entire economy as one giant firm. In this aspect, R. Coase highlights the following significant points:

As the firm gets larger, business revenues may decline, i.e., the cost of organizing additional transactions within the firm may increase. Indeed, some point must be reached at which the cost of arranging additional transactions within the firm is equal to the cost of arranging transactions in the open market, or the cost of organizing them by another entrepreneur.

It may happen that, as a result of the increase in the number of organized transactions, the entrepreneur will not be able to place the factors of production in such a way; that they create the greatest value, in other words, he will not be able to extract the maximum benefit from the factors of production. That is, a point must be reached at which the losses from the inefficient use of resources are equal to the costs of transactions of exchange for open market or losses occurring in the event of the organization of this transaction by another entrepreneur.

From the above, we can conclude that the desire of firms to increase in size will be the stronger, the: a) the costs of organization are lower and the growth of these costs is slower as the number of organized transactions increases; b) the entrepreneur is less likely to make mistakes, and the increase in the number of errors decreases as the number of organized transactions increases; c) the greater the decrease (or the smaller the increase) in the price of supplies of factors of production to larger firms.

Explaining the need for the existence of the firm as a social institution only in connection with the fact that the costs of transactions are reduced is not enough. It should be borne in mind that production is characterized by the properties of an "organized process". It has a collective character with an increasingly complex organization. A wide variety of factors are involved in production, the activities of which must be coordinated. The company carries out a continuous management process that develops into an extensive system of making and executing decisions, the connections between which are not described as the interaction of supply and demand, that is, they cannot be described on the basis of ideas about transactions (9 p. 192).

CHAPTER 2. Alternative theories of the firm

Traditional Theory of the Firm: Profit Maximization.

Due to the firm focus on profit, the desire of firms to maximize profits is taken for granted. Most theories of the firm not only postulate that profit is some goal or main goal, but unanimously assert that the well-defined goal is to extract maximum profit and that firms can be viewed as if they were seeking to maximize profits. Although it would be an exaggeration to consider profit maximization as an indicator that any actions and decisions of the form are subject to cold calculation in order to obtain the maximum excess of income over costs, maximization implies that, choosing from several alternatives with different expected profits, the firm will still choose the option with highest expected profit.

It is safe to say that profit is the goal of almost every firm - perhaps the dominant goal. Profits are a universal measure of business performance and few firms can take actions that will definitely lead to profits that are lower than they could be in the long run. Some firms are more profit-oriented, while others are less so. In general, firms that are subject to strong competitive pressure tend to pursue profit maximization goals in the short run; if the profits of the firm are large enough to satisfy shareholders, then such a firm behaves somewhat differently, allowing us to conclude that in addition to the profit maximization factor, on management decisions other factors also influence.

This is due to several reasons. In a highly competitive marketplace where profit margins are low, risks are high, and firms' ability to recover losses is low, there is a fierce struggle in which only the fittest survive. Market forces leave little room for arbitrary action. Under these conditions, it is quite difficult to earn even a normal profit, and the firm's decisions are most subject to short-term considerations. Most likely, those actions will be chosen that are optimal from the point of view of maximizing profits, since other actions are a danger to the life of the firm. That is, the harsh forces of competition can narrow the firm's freedom of action in the market and it will have practically no alternatives, except for the pursuit of the goal of maximizing profits in the short run. Similar conditions occur when a recession or inflation weakens consumer demand to such an extent that profits plummet. Methodologically, the profit maximization assumption, although not always an accurate reflection of reality, is still a fairly good approximation to the actual behavior of most enterprises that find themselves in such situations. Of course, this is one of the best assumptions that can be made about the goals pursued by such firms (2 p. 264).

On the other hand, if a firm is somewhat insulated from competition and is content with above-average profits, it is in the best position to deviate from a strict profit-maximization approach. The reason for this is that as long as profits are sufficient to satisfy shareholders, managers have some freedom to pursue goals other than making high profits. However, this freedom does not extend too far. It would be a big exaggeration to say that the behavior of firms that make solid profits is driven by "unprofitable" goals, or that managers lose sight of the impact that the achievement of other goals has on profits.

But the traditional theory of the firm just explains the behavior of the firm by the desire to maximize profits. This category is based on 2 assumptions:

The owners exercise day-to-day operational control and management of the firm.

their only desire is to maximize profits.

The theory bases the thesis on profit maximization under the equality of marginal costs and marginal revenue MC=MR.

However, this theory faces several difficulties in practice. First, firms do not use marginal analysis to evaluate or forecast their performance. Indeed, the calculation of marginal cost and especially marginal revenue is rather difficult and is complicated by ignorance of the actual demand curve for the firm's products, the elasticity of this demand with respect to prices and incomes.

Despite the fact that many large firms organize expensive market research, the information received cannot be considered 100% reliable and sufficient. Equally difficult is the estimation of future revenues and costs. Finally, it is almost impossible to predict the actions and reactions of other firms and assess the consequences of their activity.

It is necessary to pay attention to the fact that in the modern market economy there is a deep separation of the right of ownership from the right of management; and, with the exception of a small sole proprietorship, the owners do not exercise operational management, involving professional managers for this.

All these facts served as the basis for an anecdote about the effectiveness of the traditional theory of the firm, which is given by some Economics textbooks: “A car driver periodically throws small pieces of paper out the window.

I scare away elephants, - he answers.

But there are no elephants here, - the friend is amazed.

You see how wonderful it works,” the driver said proudly, throwing another piece of paper out the window.

Jokes aside, but the traditional theory does not explain the behavior of the firm in the best way, which is why many economists have proposed alternative theories that derive the behavior of the firm from completely different premises and unite it with other targets.

In summary, the profit maximization assumption is particularly suited to the following situations:

large groups of firms, when nothing can be said about the behavior of individual firms;

intense competition;

explaining and predicting the overall impact of specific changes on prices, output and resources, rather than their specific values;

consideration of directions, rather than exact numerical results of activities. But when the behavior of individual firms is considered, when the number of firms is small, when competition does not threaten profitability, and/or when precise numerical estimates are required, then firm objectives must be clearly defined before behavior can be reliably explained and predicted.

Now consider another theory of the firm - this is the managerial theory of the firm: maximizing sales revenue.

In economic theory firm interpreted as organization , created by a group of persons to implement the interests of the group. Firm function – combining resources to produce the goods and services needed by consumers in order to maximize profits.

Traditional approach to the definition of the nature of the firm is based on classical and neoclassical views in economics.

In this case, the company is considered as a set of independent elements isolated from each other, the functioning of which is subject to certain general laws based on the principles of marginalism:

· main goal firms in any position in the market acts profit maximization;

Achievement of this goal is possible with implementation of the principle of equality of marginal costs to marginal income.

This approach defines a firm as abstract conditional object and underlies the modern course of microeconomics.

The need to assess the nature of the modern firm in terms of real conditions of its functioning, gave rise to concepts that are alternative to the classical approach.

Management theory of the firm(W. Baumol, R. Merris, O. Williams) arose in connection with separation of ownership and management functions in a modern corporation. The modern manager is different from the owner. It is not burdened with the object of appropriation and, therefore, the risk of its loss. Often he does not even take part in the share capital. For him the main motive of activity is a career and the maximization of one's own income associated with it. That's why the target setting is one that, depending on the situation, provides high earnings, status and prestige to the company's management. Such goals can be: increase in sales(model W. Baumol); maximizing growth rates(model R. Merris); maximizing the personal wealth of managers(O. Williams). It is easy to see that the realization of the last goal directly reflects the interests of managers. As for the first two, then: it is from the volume trading revenue depend value wages, all additional benefits and payments to managers; with a growing firm, there are prospects for increasing not only the income of managers, but also their status.

At the same time, in all three cases of goal setting management interests may not coincide(or not completely match) with the interests of the owner. So, in the case of maximizing sales, the company's profit does not reach its maximum value, which leads to a reduction in dividend payments and dissatisfaction on the part of shareholders. The same applies to maximizing growth: to ensure the growth of the company, it is necessary to direct a significant part of the profits to the production development fund. Consequently, that part of the profit that is paid to shareholders in the form of dividends is reduced. Thus, there is principle of discretionary management , i.e. the independence of management from the "concerns about the adequacy of the level of income" of the firm and the close relationship with its own income.

However, professional management has all the necessary conditions to ensure the implementation of the interests of the owner more effectively than the owner of the capital. Manager is a management professional. Due to a weaker personal interest than that of the owner in the preservation and accumulation of capital goods, he is more mobile and objective in making decisions, therefore strives for optimization even when the owner cannot or does not want to make a rational decision . In addition, any manager understands that in the long run, his own income directly depends on the income of the firm, and therefore in teres of managers and owners, eventually , match.

Management theory of the firm is closely related to behavioral (behavioral) theory .

According to this theory, the characteristics of the firm are based on the analysis not of the goal, but of behavior, features of the real decision-making process by the management bodies of the corporation.

The behavioral approach is opposed to the marginalist approach and defines the concept of "satisfaction". This means that the firm there can be no single goal: profit maximization, sales volume, etc. Firm – a complex system, wherein different departments have different interests and goals, embodied in specific indicators. For example, for the production department, the main indicator is the volume of production, for senior management and the sales department – sales level and market share, for employees – wage level. These tasks in the aggregate do not have to be integrated into one common goal. To solve each of them, it is necessary to achieve not the maximum, but a “satisfactory” level. Here it means achievement such compromise between intra-company entities , which the, without ensuring the maximization of each goal, could satisfy all stakeholders . It is this agreement that the main task administration, the principles of behavior of which were revealed by G. Simon and his followers: J. March and R. Cyert.

A logical continuation of the development of the theory of the firm is the active use evolutionary approach, according to which the firm is considered not as a static, but as a dynamic model. Wherein firm behavior in many ways dictated by the active influence of the external environment. External environment, according to the theory of the American economist A. Alchian, is characterized, first of all, by the state uncertainty in conditions of limited information and imperfect knowledge. In this case, the application of the principle of optimization in general and profit maximization in particular is impossible, since, on the contrary, the presence of complete certainty is assumed. In times of uncertainty, it is important not maximization, a the result of market selection, which cannot be predicted and which is not necessarily related to the maximization of individual indicators. According to the models of evolutionary theory developed by R. Nelson and S. Winter as such a result is definedthe prevailing stereotype of the company's behavior, or routine . She represents the result of accumulated knowledge, techniques, skills. Routine makes firms' behavior predictable and reduces transaction costs. For the survival of the firm in a competitive environment, the main issue is search for routines that are most appropriate for changing external conditions.

Despite the active development alternative theories firms, the marginalist approach remains fundamental in the course of economic theory as the most common, justified, developed and formalized. According to the American scientist F. Machlup, researchers who criticize the traditional theory of the firm "do not see that a simplified model helps to streamline the observed world."

Besides, traditional theory of the firm also changes in accordance with the dictates of the times. Thus, it was further developed within the framework of "new institutional theory" or "transactional economy", the founder of which is R. Coase.

According to this direction:

The subject of analysis is not only the firm itself as an economic entity, but also the relationships within it;

Relations within the firm are largely determined by the need to save non-production costs or transaction costs.

Transmission costs– this is transaction service costs(deal – transaction). The main items of these expenses are:

· costs of determining and protecting property rights. Fundamental rights usually include the right to use a resource; the right to receive income. These rights must be clearly defined by rules and regulations and well protected by relevant institutions. – government bodies, courts, arbitrations, etc. When concluding a transaction, the established powers and the conditions for their transfer are fixed in the contract;

· the costs of economic dishonesty, or opportunistic behavior. Economic dishonesty (opportunism) is an attempt by one of the contracting parties to extract unilateral advantages at the expense of the other. Among the forms of economic dishonesty – obvious deception and fraud, one-sided use of information, concealment of true intentions, extortion, shirking, etc. Such behavior, on the one hand, can cause obvious damage to one of the parties. On the other hand, it is not unequivocally illegal, since it is difficult to separate its objective side (reducing costs, improving product quality) from its subjective side. – economic dishonesty. The performance of a contract can therefore never be guaranteed, and the costs associated with the prevention of economic dishonesty are usually very high;

· costs associated with unexpected circumstances under bounded rationality. Bounded rationality suggests that people have limited opportunities in obtaining and processing information to select options that best suit the chosen goals. And if so, then always there is a certain chance of error. It is impossible to reliably and fully take into account all the options for changing the situation, so the possibility of losses associated with the deterioration of the situation (as well as the benefits associated with improvement) is significant. Some of the most likely cases of force majeure may be taken into account in advance when drawing up the contract. However, it is impossible to take everything into account, therefore, in addition to the costs of providing guarantees, there may be additional costs associated with indemnification.

Other types of transaction costs include: costs of searching for information, costs of negotiating, costs of measuring the quantity and quality of goods and services etc.

Exactly the desire to minimize the transaction costs of concluding transactions in the market explains the existence of firms. Within each firm, the principle of organization operates, which is opposite to the market one: the hierarchy is opposed to the elements. It is the administrative principle of management that significantly reduces or completely eliminates transaction costs associated with the need to frequently renew contracts, search for information, and negotiate.

The evolution of the various theories of the firm seems to be in the direction of convergence. This is evidenced at least by the fact that individual economists, in fact, are simultaneously representatives of different schools.

The firm is one of the subjects of the market economy. In her activities, she is guided by interests that determine her behavior to achieve goals. These goals are treated differently by different theories of firms. Traditional theory(the theory of profit maximization). This theory explains the behavior of the firm by the desire to maximize profits. It is based on 2 assumptions: 1. The owner exercises daily operational control and management of the firm. 2. The sole desire of the firm is to maximize profit, this is achieved when marginal cost and marginal revenue are equal. Firms usually do not use a marginal approach to assess their performance, because. calculating marginal cost and income is difficult, it is difficult to figure out the dynamics of the demand curve for firms' products under the influence of price and income elasticity of demand. Also, in a modern market economy, the owner usually attracts managers to manage it. Therefore, this theory is not able to explain the behavior of the firm in accordance with the realities. managerial theory. 1. operational management carried out not by the owner, but professional manager. 2. The manager's goal is to maximize sales and income. This approach reflects the modern reality, because in the conditions of JSC, the owners of shares are only formal owners, and management is entrusted to managers. This theory is realistic because The manager's salary directly depends on the sales revenue. With the growth of trading revenue, the status of the manager rises, because. this allows you to introduce new methods, expand its staff. Maximizing Firm Growth The overall goal of the firm is to maximize the growth of the firm, managers strive for this in order to increase their status and salary. The owners pursue the goals of personal enrichment, strive for the growth of assets. The rate of retained earnings: the entire profit of the company is divided into two parts, one is paid in the form of dividends, the other remains undistributed and forms a production development fund. The ratio of the undistributed part of the profit to the distributed part forms the rate of retained earnings, or the rate of profit retention. If managers distribute a large share of profits in the form of dividends, shareholders will be happy, the market price of shares will rise, which will protect the company from buying shares by competitors. A low savings rate will not provide opportunities for the growth of the firm. Conversely, if managers leave the bulk of profits undistributed, then dividends will be low, shareholders will be dissatisfied, but the opportunity for firm growth will increase. In this case, shareholders may start selling shares, their rate will begin to fall, and there will be a threat of the company being taken over by competitors. The challenge is to keep maximum profits while paying sufficient dividends.

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10.2 Theories of the firm in modern economics

Let us name some theories of the firm that exist in modern economic theory:

1. The "black box" theory (the so-called neoclassical approach). In accordance with this approach, the firm is a transformer of resources into goods, and this transformation process is described production function. The advantages of this approach are the ability to build mathematical structures to describe the activities of the company. However, this approach does not explain why the firm comes into being, says nothing about the development and disappearance of firms, and does not shed light on the internal structure of the firm.
2. The theory of minimizing transaction costs (the approach was developed by the American economist Ronald Coase). In his 1937 work The Nature of the Firm, Ronald Coase asked a simple question: what motivates individuals to economic activity join firms instead of directly contracting among themselves, being self-employed? Coase's answer is that there are transaction costs 1 . The firm allows to reduce such transaction costs, and this is main reason her existence.
   The Coase approach was the first to answer the question of the emergence of the firm, but this approach ignores the problems associated with the incentives of individuals within the firm.
3. The principal-agent theory. This theory states that the main reason for the emergence of the firm is the need of individuals for teamwork. Teamwork has a number of difficulties: the exact contribution of each member of the group can be difficult to measure, team members can shirk from work, everyone will consider his contribution more important than others. Under these conditions, the firm acts as a central agent that coordinates the work of the team, determines the duties and rewards of each team member. This approach first drew attention to the existence of incentives for individuals within the firm to a particular behavior.
4. The Firm as a Conflict Resolution Mechanism (Oliver Williamson Approach). In the process of economic activity, individuals participate in countless conflicts. Many conflicts are resolved with the help of the market mechanism. We have already seen that the market is the interaction of conflicting parties - buyers and sellers, and the result of conflict resolution is the price. Williamson (who was a student of Coase) suggested that the firm is a good conflict resolution mechanism when there is too little market or when there is too little bargaining in the market. For example, a team of four employees cannot, using the market mechanism, determine the contribution to the overall result of each employee and the income of each, because the process of bargaining and searching for agreements can continue indefinitely. But their boss can, and this is the advantage of the firm as a mechanism for resolving such conflicts.

1 We have already said that transaction costs are the most important concept of modern economic science (to be precise, its direction is institutional economics). Transaction costs are like friction in physics. These are the costs that accompany the economic relations of economic agents. This is the cost of searching for information about the right product, the costs of finding the right buyer and seller, the costs of insurance against unfair behavior of the counterparty, the costs of legal support and processing of transactions. For example, you decide to buy a used car on the website www.auto.ru. Your transaction costs will be the time spent looking for a car and negotiating with the seller, the cost of drawing up a sales contract, the cost of diagnosing a car before buying, the cost of car insurance.