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Comment by JeromeLon | Hacker News Reader

This is predicted by contract theory: in a perfect free market (we are still far, but we keep getting closer), and a perfect contract market (we are still very far, but we keep getting closer), there are no companies at all. Just ad hoc contracts.

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Firm theory says that all companies exist to reduce the friction of negotiating all these things over and over again.

With transparent, market driven pricing, you don't have to negotiate.

Doesn't that assume that contracting resources are all the same?

Not necessarily. You just need a trustworthy reputation system to go with everything else. Some things will cost more, some less, more reputation costs more, too. Relevant, in demand experience costs more.

What exactly do you think a market is?

Oh, goodie. I get to compete against people who are gaming the system to enhance their artificial reputation in the name of a market.

Do I get to trade recommendations with 30 people on "Agile Methodologies?" We can turn LinkedIn into a MMORPG! Great!

You're already competing against those people. You're just doing it in an environment that puts you at a disadvantage.

That's so incorrect I cannot resist replying.

What do you think a market is, if not negotiations about prices?

The simplest markets are commodity markets: there are a large number of sellers, a large number of buyers, a large quantity of goods which are all substitutable for each other -- who cares whether you buy this bushel of winter wheat vs that other one? -- and everyone has perfect communication with each other.

Like perfectly spherical cows, this doesn't happen exactly in the real world, but is close enough to some scenarios to be useful.

Here are factors which affect the price in the market and therefore require negotiation:

- flood - drought - unexpected hot weather - unexpected cold weather - diseases - war - transportation costs - fertilizer costs - labor costs - legal manipulation - accidents - irrationality

(I left out governments, taxes, and all sorts of illegal things that won't count as "transparent", but exist anyway.)

And that's just to buy grain, a commodity so basic that the Babylonians invented accounting and writing to deal with it.

Yes, you need to negotiate. Sometimes you can just say: "the price you quoted is sufficiently low that I can accept it immediately", but that's merely the fastest negotiation.

Firm theory reflects the empirical reality that markets aren't perfectly free and efficient.

A consequence of firm theory is that more standardized arrangements lead to less friction in negotiations, and smaller companies. Conversely the more that arrangements are in flux, the more that you need an integrated company to enable the refactoring of roles.

This reminds me to re-read Coase's "The Nature of the Firm." 80 years old and still brilliant.

> Firm theory says that all companies exist to reduce the friction of negotiating all these things over and over again.

But the negotiation costs are coming down. There's now a number of somewhat standardised roles in your typical web startup (design, dev, PM, etc) and there's enough common language that expectations are close enough to being met.

There's also virtually no running costs at the MVP stage. You can rent servers, and you can avoid renting an office. So you don't have the negotiating problem of who swallows the losses, because the losses are just your individual opportunity costs.

This is of course for your typical unspecific "let's make an app" idea. If you need real capital, the firm is still a good place to start.

This is assuming that roles are static and unchanging and technologies don't morph. Which they do. The idea that negotiation costs are coming down constantly is fallacious and unrelated to a reality where tech keeps changing.

Isn't even tech, a notoriously mobile and free-wheeling industry, not perfectly contractable? See the intense interview processes. It's not simply preventing low-quality workers from being hired- if it was a perfect contract situation, then employers can simply terminate them as necessary.

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