Overcoming Cournots Dilemma on Increasing Returns and Competition through an Integrated Perspective on the Firm

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This paper shows that Cournots dilemma on the incompatibility of increasing returns and competition can be resolved under a new integrated perspective that overcomes the traditional disjunction between scale, knowledge and transaction-cost analyses which have been developed within separate theoretical approaches. Taking into account, not only returns to scale, but also knowledge and transaction cost considerations helps to understand why, contrary to predictions, the tendency towards an increased dimension and monopoly may not operate in spite of the presence of significant economies of scale. It is argued that the boundaries of the firm are the result of the interplay and co-evolution of knowledge-, scale-scope- and transaction-based considerations. This dynamic interaction favours the emergence of a variety of organisational structures and the coexistence of different sizes even in the same sector of activity.