The Study Of Efficiency Boundary Of The Firm Network

Firm Theory is one of the eternal themes of economic development and economic research. Since the 1970s, more and more firms organize production and trading activities through virtual enterprises, outsourcing, firm groups, strategic alliances, and other forms. The emergence of these new forms of organization (that is called firm networks by economists) caused great concern and research interests of theoretician, and firm network theory become the newest theoretical concept. This article hopes to provide some help for abundance of firm network theory by studying the efficiency boundary of firm network.First, this paper give a introduction abort the significance of research, the route to study, content arrangements and other issues discussed, and review relevant research literature. Secondly, the paper explain the meaning of the firm network, analyze the nature characteristics and the existent value of the firm network, and find firm network is more saving in transaction cost than market and more saving organization cost than firm as an inter-organization form between firm and market. Third, this paper analyze efficiency boundary of the firm network from three different perspectives. (1) From the viewpoint of transaction cost, we assume that the marginal organization cost is declining with the production separation of the semi-manufactured goods, and the marginal transaction cost is U-shaped curve. The marginal organizations cost curve intersects the marginal cost curve at two points, and the efficiency boundary of the firm network is fixed on by two points.(2) From the viewpoint of throughput, we assume that selling price of semi-manufactured goods consists of production cost, "forcing cost" and transaction cost, that is, the demand curve of semi-manufactured goods is a U-shaped. The efficiency boundary lies on where production cost of semi-manufactured goods is equal to the selling price (subcontracting price or market price), while the efficiency boundary lies on the minimum point of demand curve of semi-manufactured goods. (3) From the viewpoint of the cost of obtaining knowledge, we put knowledge into explicit knowledge and tacit knowledge, and while tacit knowledge consists of commonly tacit knowledge and core competence knowledge. The cost of obtaining knowledge is unequal to different organization, the efficiency boundary of firm network is defined by comparing cost of the organization with another. Finally, the paper analyzes further governance structure of the firm network, and the cooperation between the firms by the game theory.