Market coordination

Market coordination is best described through an example. Consider the production of

a heavyweight boxing match. The fight promoter hires an arena, a boxing ring, broadcast specialists, concession services, some boxers, a publicity agency, and a ticket agent.

These are all market transactions. The promoter then sells tickets to the event through the ticket agent, along with broadcasting rights to a television network. So, the fight is produced through the coordination of markets.

Another example of market coordination is outsourcing. With outsourcing, a manufacturer of a product buys some or all of the product's components from other firms. The manufacturer then assembles all of the outsourced components to produce the final product. Outsourcing is a common practice in the automobile and personal computer industries.

Firm coordination

Firm coordination occurs when firms can coordinate economic activity more efficiently than markets can. This is possible because firms can often achieve lower transaction costs, economies of scale, economics of scope, and economies of team production.

·         Transaction costs refer to the costs associated with the negotiations that must take place when attempting to coordinate markets. Firms can often reduce transaction costs by reducing the number of individual transactions that must take place.

·         Economies of scale exist when the average unit cost of producing a good decreases as output increases.

·         Economies of scope occur when a firm can use its specialized resources to produce a range of goods and services. For example, a publisher hires editors, typists, reporters, marketing experts, and media distribution specialists and uses their skills across all of the firm's published products. This is less expensive to the publisher than it would be for an individual who attempted to hire these services individually in the markets.

·         Economies of team production occur when a team of a firm's employees becomes highly efficient at a given task. It is usually less expensive for a firm with a well- honed team to produce a good or service than for an individual who has to hire the individual members of a team in the markets.

Solar cell

 The market for solar panels is global, and firms in many countries are capable of producing the panels. Photovoltaic solar cells are based on a technology similar to that used to produce semiconductors, and most semiconductors are produced in East Asia with some production in Europe and the United States. Chinese manufacturers with conventional photovoltaic technology set the cost standard for the industry. Moreover, China maintained a lower dollar–yuan exchange rate than if the market were allowed to set the rate, although China had allowed the exchange rate to rise somewhat in 2010.

Another factor in China’s favor was its government. The Chinese government is authoritarian and can act quickly and decisively. The size of the Chinese economy also means that resources can be readily mobilized by government in the domestic capital and factor input markets. The Chinese government views renewable energy as an attractive industry for growth and also for dealing with China’s substantial pollution problems and its high-energy usage. That the Chinese government would provide incentives for renewable energy companies, and even generous subsidies, was not surprising.

Another factor in China’s favor was its government. The Chinese government is authoritarian and can act quickly and decisively. The size of the Chinese economy also means that resources can be readily mobilized by government in the domestic capital and factor input markets. The Chinese government views renewable energy as an attractive industry for growth and also for dealing with China’s substantial pollution problems and its high-energy usage. That the Chinese government would provide incentives for renewable energy companies, and even generous subsidies, was not surprising.