Armen Alchian

Armen Alchian (1914-2013) was an American economist and a leading figure in microeconomics. He is mainly known for his microeconomics work and research on property rights, business costs, resource utilization, and economies of scale. He also embraced a libertarian approach to economic thought.
 
Alchian worked as a professor at famous American universities such as the University of Chicago and UCLA. While teaching at UCLA in the 1950s, he worked with Ronald Coase, known for his studies on why large firms exist, also known as "firm theory."
 
One of Alchian's most significant contributions is a theory known as the "costs of relevance," which demonstrates that the price of a good depends on the cost of the inputs used to produce it and the demand for these inputs in the market. Alchian is known for his research on property rights and resource utilization, which has practical applications in business profitability and competitive strategies.
 
Along with Nobel Prize-winning economist Harold Demsetz, Alchian wrote an essential article on the question, "Why are there large firms?" This article addresses factors such as property rights, business costs, and market power to explain the existence of large firms, and it is a critical contribution to firm theory.
 
Regarding the existence of large firms, Alchian argues that they benefit from having property rights. The property rights held by large firms allow them to use resources more efficiently, enabling them to achieve higher productivity and lower costs than smaller businesses.
 
Alchian suggests that large firms can exist due to their market power. Because large firms have a particular market share in a given sector, they can exert a strong influence over more customers and purchases. This gives them more market power and enables them to apply better pricing strategies than smaller businesses.
 
Finally, Alchian notes that the low costs of operating large firms are also a significant factor in their existence. Large firms often take advantage of economies of scale, which leads to lower operating costs. This allows them to provide cheaper goods and services than smaller businesses.