Abstract I was once in the habit of telling pupils that firms might be envisaged as islands of planned co-ordination in a sea of market relations. This now seems to me a highly misleading account of the way in which industry is in fact organised. The underlying idea, of course, was of the existence of two ways in which economic activity could be co-ordinated, the one, conscious planning, holding sway within firms, the other, the price mechanism, operating spontaneously on the relations between firms and between firms and their customers. The theory of the firm, I argued, had as its central core an elaboration of the logic of this conscious planning; the theory of markets analysed the working of the price mechanism under a variety of alternative structural arrangements.