Economics

Theories of the Firm
Firms are the wheels of modern economy. However, despite its benefits and utilities, the presence of firms is also the cause of many problems we know today. A firm represents an organization with all its complexities and barriers. In the worst case scenario, firms can be organizations that are hampering their members to obtain their goals, while in fact it was created to help people get what they need. Ultimately, intellectuals and young scholars are re-examining the justification of living in a world where firms and such complications are a way of life.
Theories of the firm are thoughts and research dedicated to answer the following questions
Why firms do exists
Why are there boundaries in Firms
Why are firms structured in specific ways
What drives differences of actions and performances of firms

Concerning the theories of firms, this paper discuss the case study on e-Bay and its dispute with the owner of Skype technology, Joltid, which asserts to be the worlds leading companies in the development of peer-to-peer technologies. The company was founded by the team who created Kazaa, a popular music download portal.
In particular, this paper would elaborate what ways does the article challenge some institutional theories of Firms Based on the evidence provided, which economic theories seem to explain best the evidence discussed in this article
Case study Skype
Firms and Increased Efficiency
The transaction cost theory stated that firms exist because there are people who have similar or reciprocal needs and they decide to cooperate and create under mutual agreement. In addition, the managerial and behavioral theory on the other hand, stated that firms exist because managers, leaders or owners are forcing their power on weaker people, so that they can have more of what they want. The team-approach managerial theory stated that managers might have their own best interests in mind, but they realize that by cooperating, individual needs are easier to reach.
Despite the differences of these theories, they all have the same root. All theories claim that by working together, they will increase the efficiency of their work, no matter whose interest in the groups minds. Within the article, it is this premise that is challenged. The article gallantly revealed its own sentiment that the formation of firms is not increasing the efficiency of work, but they are decreasing it.
The article indicated that the operation of a firm is identical to complication and costs to finance the intermediary parties that are standing between the people who are searching for goods or services and people that are actually providing them. Other reasoning stated by the article is that the formation of firms increases the relevance of agent issues, which means that once a firm is established, managers would have to find ways to motivate their employees who are taking orders from them and having less pay than them. Failure to motivate these employees will generate a decreased efficiency.

The article attempts to prove its point by revealing the case of Skype. Skype is a software application that allows users to make voice calls through the internet. Additional features are file transfer, instant messaging and video conferencing. The product has obtained wide customer base and it experienced rapid growth since launch of its service. The company was acquired by eBay in September 2005 (Biondi, 2009).
The service of Skype brings benefit to its customers and it was a highly prospective business. Nevertheless, when there are rumors that the parent company-E-Bay stated that it does not own the underlying technology, then the service lost its prominence. The writer of the article regrets such occasion could occur. The logic behind the occurrence is that Skype is beneficial to people not matter the holder of the technology and the creator. In reality however, people are not buying the function of Skype, but they are buying E-Bays brand name. This is why the writer of the article argue that the presence of firms actually mislead people from getting what they need.
This condition highlights the theory that technology becomes the key competitive advantages. Firms use electronics commerce in order to achieve improvements throughout the organization. The benefits of these improvements are better relationships with suppliers, more effective efficient operations, and improved customer service, to name a few.  The case of e-Bay that reveals the non-possessing technology of Skype decline the public beliefs on the sustainable advantages that e-Bay poses in the peer-to-peer services.
What constitute an effective corporate is a challenging issue. Referring to the definition of effectiveness, the best company is the one able to take advantage of available resource to produce the most benefits. Despite the importance of securing continuous resource flow to the company, the trick is actually more on how we manage available resources to produce the best outcome. This means that today, managers are increasingly demanded to manage corporate resources more effectively. Research and discussion about management skills and efforts of enhancing them are abundant.
Nevertheless, there are those resources that are highly valuable for firms, for instants, highly experienced managers, patents and new inventions in information technology. For these resources, firms are competing to increase their attractiveness and sensitivity, in order to be the first to gain the competitive advantage.
The actual benefit for business lake e-Bay is they must understand the opportunities that electronic commerce offers gathering intelligence about its customers and other environmental entities. The idea of recognizing customer behavior further evolves into customer relationship management (CRM).
Furthermore, the case also revealed another problem stem from the existence of firms, which are hold-ups. Hold-up is a strategy of preventing the existing contract from working by means of complaints and continuous objections, in order to direct people into negotiating a new contract. This process is considered the characteristics of all firms and therefore they are counterproductive.
In the end of the article, it is revealed that despite its argument regarding the absence of necessity in having a giant corporation name as a shelter for business offerings, the writer suggested a practical solution, which is for E-Bay to attain ownership of Skype and its supporting counterparts, so it can regain its long-time customers (Arthur, 2009).