According to Coase, the existence of firm is an effective means of minimizing transaction costs. Therefore,...

According to Coase, the existence of firm is an effective means of minimizing transaction costs. Therefore, do you agree that the larger the firm, the lower of the transaction cost?
What factors determine the cartel formation?

Expert Solution

- Yes, I completely agree with the statement of Coase that the existence of firm is an effective means of minimising the transaction costs.
I agree that the larger firm can lower the transaction cost for the long term existence and there are some other benefits of lowering the transaction cost.
1.Low transaction cost raises the profits of the firm.
2.Lower transaction cost means the existence of firms in the competitive environment.
3.Transaction cost is the main cause of raising the cost of production and it affect the revenue of the firm also.
The following factors determine the cartel formation which are as follows:
1.When there is a very high level of competition in the market.
2.When there is very high level of product identification in the market among the firms.
3. When consumer is dominating the market then the firms are in a view to form the cartel.
4. When there is a problem of cost management and revenue management then it will create a situation of formation of cartels among the firms.

Rahul Sunny answered 7 months ago

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