On the Firm’s Raison d’Être and Competence-Based Nature of the Firm

Why do firms exist? The standard answer of economic theory is that firms offer protection against highest levels of uncertainty. The paper employs the competence-based theory of the firm as a branch of market process theory to develop answers that go beyond this traditional viewpoint by emphasizing that firms are institutions that allow for taking the opportunities of the market process different from alternate institutions. Centrepiece of the paper is the notion that firms have an organizational ambiance that protect firms from threats in competition and nurtures the development of resources and competences