Companies and markets: economic theories of the firm and a concept of companies as bargaining agencies

The depiction of the firm in neoclassical theory in terms of a production function is widely recognised as unsatisfactory. Economists have sought to provide more realistic theories of the firm through attributing to them functions of minimisation of transaction costs, accommodation of bounded rationality, assembly of information, etc. These functions are seen as supplementary to their role as participants in a broadly neoclassical market framework. This paper suggests that the theories do nothing to increase the understanding of the firm; rather, they deepen the misconceptions that arise from the neoclassical model. The paper proposes a theory of companies as bargaining agencies meeting a viability condition in the context of situation-related consumer demand. The proposed concept integrates the important phenomena of technological innovation and distance fully into the concept of company operations.