ABSTRACT
Smaller companies demonstrated more pronounced increases in diversification than did the largest firms and consequently the clear difference in diversification by size of firm observed in 1950 had faded by 1975. Ronald H. Coase moved away from traditional theory by rejecting the view that the limits of the firm were a parameter and by arguing that the firm's limits were themselves a decision variable requiring economic evaluation. The transaction cost approach to the study of economic organization focuses on the transaction as the basic unit of interest, in contrast with commodities. It further recognizes that alternative governance structures exist for the organization of economic activity with the two principal types being the firm and the market. David J. Teece argues that to predict the organizational structure likely to result when economies of scope characterize the cost function, the origin of such scope economies must be known.
