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Munger on the firm

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Here is the latest EconTalk, Mike Munger talking [2] about the Coase and transaction costs and the nature of the firm.

About half way through, I raise the example of how hard it is for a department store to compete with the various stores in mall that carry similar merchandise. The shoe store has to live and die selling shoes. They have to cover their costs including rent or go out of business. The department store in the same mall has much less precise information on how its shoe department is doing. It has to impute a rent. It provides without charge the accounting and other services shared by all the sections within the store.

So how does a department store compete? How does the business model of a department store survive?

In the podcast, I promised to come back to this question. But I forgot to. I’ll give my answer eventually, either in a future podcast or in the comments section to Munger. But in the meanwhile, feel free to listen to the podcast and leave an answer of your own in the comments to the Munger podcast [2].

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