points by logicchains 3 days ago | 0 comments
>if a company was growing at, say, 10% per year, prior to the covid-craziness, then one would expect something like that natural growth to continue
A company growing 10% per year would be around 7x larger 20 years later. There's a limit on how big companies can get.
[–] solyin 3 days ago
[–] Barrin92 3 days ago
Yes, there is. Read Coase's seminal paper, The Nature of the Firm. Companies function by replacing market mechanisms with bureaucratic administration. That finds its end when internal coordination or misallocation of resources incurs more cost than it saves in transaction costs.
Conglomerates therefore have a ceiling in size, and it's the reason why unwinding them generally increases market value for the sum of its individual companies (in finance parlance: "conglomerate discount"). It's also why the Soviet Union didn't run very well, and very large conglomerates are usually the consequence of political/economic arrangements.