The conduct of business may consist of shaping raw material to finished product or deliverance of service to the consumer. As an externalizing agent, the corporation maximizes its profit at the cost of any or all of its stakeholders—the employees, the suppliers, the environment, shareholders, and the consumers. Software development is a process whereby an individual worker or a group of employees pool in their intellectual resources to create software. The raw materials are the technology platforms and intellectual property already in existence. The product is priced by the corporation based on the demand-supply situation or on a cost derived out of its brand power. However, what the corporation fails to appreciate is the externality of its employees. It only pays a part of the intrinsic value of the product to its employees as salaries. Salaries do not account for those costs that would be incurred if the same professionals were to render their services elsewhere. These costs are built into the cost of the product but are not passed onto the employees. Employees are marginallyTransaction Cost Theory: Transaction cost theory advanced by Robert Coase (1937) says that the market price of the product is consciously fixed by the individuals, who control the company in which the particular product is manufactured. Transaction cost theory is unambiguous on the issue of the control of the internal resource control mechanism. Robert Coase quotes Robertson who says that the firm functions as an ‘island of conscious power’. The means of production—the employees and the machines are directed to perform in a particular way. There is a conscious decision making, policing, and exploitation of the employee to create a particular product and its deliverance to the consumer. The price of the product is not determined by the social costs of the employees. Rather it is wilfully deduced by the controllers of the company while entering into a contract with another party for the supply of a particular product.
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