Cooperation is one of the pillars of markets, because markets are based on exchange. A buyer and seller cooperate to make an exchange.<p>Coase&#x27;s question was: why don&#x27;t we see the free market structure that linear algebra predicts? Why do firms exist?<p>His answer was fairly insightful. Markets impose search and transaction costs. To buy something from a market, you must search it for a seller and come to terms.<p>Inside a firm, that search cost may well be zero. Need HR services? Call HR. No need to look for a provider, negotiate a contract and so on. Need IT? Ring the support department. No need to weigh the virtues of IBM vs HP vs the corner store.<p>But sometimes it&#x27;s the other way around. Need pens? In some companies the process is so onerous that you&#x27;ll just go to the local store and buy your own.<p>That boundary moves around (consider the impact of IT, for example), but it&#x27;s always there. If search and transaction costs fall to zero, the firm would in theory become unnecessary.<p>Comparing a market -- or a city -- to a firm is a mistake, because they are different structures emerging from different pressures on the same free agents.