According to coase's theory of the firm, why do firms exist? how do firms contribute to the efficiency of the market economy in ways that 'networks of independent contractors' do not? how are the boundaries of the firm best established?

Published "The Nature of the Firm" According to Coase's Theory of the firm, firms exist because going to the market all the time can impose heavy transaction costs. Firms exist to economize on the cost of coordinating economic activity.

Increasing marginal costs of organizing more transactions within the firm and decreasing returns of managerial ability (knowledge, computation limits ...) are the boundaries of the firm.