Abstract
We shall use now the concepts and tools developed in chapter 3 to analyze how the variability conditions, the coordination requirements, and the information structure interact to create the need for the emergence of firms to carry out the production of products composed of several elementary parts.
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Suppose we are producing another unit of r11 by using the combination (P11, P21, P31) and a variation occurs in the characteristics of the material used to produce the varieties of P1, such that, after the variation, we can produce only variety P13. Then the characteristics of the material used to produce varieties of P2, and those used to produce varieties of P3 are such that varieties P23 and P33 can be produced and the next unit of r11 will be produced by using the combination (P13, P21, P33). This assumption is not essential to our argument. It is included to avoid the inconvenience of having to consider the possibility of the impossibility of producing the desired variety of motor.
Remember that the condition for the varieties of the elementary parts P1, P2, P3 to be produced in the same firm is that those carrying out the production need communicate with each other. But since we assume that any individual always communicate with him/herself, the firm can be a single person. However, that the firm producing the varieties of P1, P2, and P3 is a three-person firm is implied by the explicit assumption earlier in the chapter that the varieties of each of the elementary parts will be produced by an specialist in that part and the implicit assumption that different parts have different specialists.
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© 1996 Springer Science+Business Media Dordrecht
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Camacho, A. (1996). Variability, Coordination, Information Structure, and the Logic of Firms and Markets. In: Division of Labor, Variability, Coordination, and the Theory of Firms and Markets. Theory and Decision Library, vol 22. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-8658-0_5
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DOI: https://doi.org/10.1007/978-94-015-8658-0_5
Publisher Name: Springer, Dordrecht
Print ISBN: 978-90-481-4648-2
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