Briefly explain various managerial theirs of firm with special focus on Marris and Williamson's model.
Various managerial theories of the firm focus on how firms make decisions and allocate resources to maximize profits and achieve their objectives. Two notable theories are Marris's growth maximization model and Williamson's transaction cost theory.
Marris's model suggests that firms seek to grow and maximize their market share in order to increase their market power and therefore their ability to earn higher profits. The model posits that firms balance two conflicting goals - the growth of sales (proxy for market share) and the growth of profit. Marris argues that firms will prioritize sales growth in order to increase their market power, and will reinvest profits to finance growth rather than distribute them to shareholders.
On the other hand, Williamson's transaction cost theory suggests that firms exist to minimize transaction costs associated with conducting economic activities in the market. Transaction costs include costs related to negotiation, monitoring, and enforcement of contracts. Firms internalize certain activities to avoid these transaction costs, such as when a company decides to produce goods in-house rather than outsource production.
Overall, these theories provide different perspectives on how firms make decisions and allocate resources. Marris's model emphasizes the importance of growth and market power, while Williamson's theory highlights the role of transaction costs in shaping firm organization and decision-making. Both theories contribute to our understanding of how firms operate and compete in the market.