We shall here define the market as a set of social institutions in which a large number of commodity exchanges of a specific type regularly take plac… - Geoffrey Hodgson

The use of the term institution has become widespread in the social sciences in recent years, reflecting the growth in institutional economics and the use of the institution concept in several other disciplines, including philosophy, sociology, politics, and geography. The term has a long history of usage in the social sciences, dating back at least to in his Scienza Nuova of 1725. However, even today, there is no unanimity in the definition of this concept. Furthermore, endless disputes over the definitions of key terms such as institution and organization have led some writers to give up matters of definition and to propose getting down somehow to practical matters instead. But it is not possible to carry out any empirical or theoretical analysis of how institutions or organizations work without having some adequate conception of what an institution or an organization is. This paper proposes that those that give up are acting in haste; potentially consensual definitions of these terms are possible, once we overcome a few obstacles and difficulties in the way. It is also important to avoid some biases in the study of institutions, where institutions and characteristics of a particular type are overgeneralized to the set

The firm as a relatively durable organizational structure is able to deal with the lack of knowledge about the future fruits of research and development and innovation. Its relative internal stability means that it can carry unquantifiable risks which would be eschewed in the volatility of the market. In particular large firms are able to set up and sustain R&D departments with their own funds. It is widely recognized that atomized, small-scale private enterprise is not well able to make such long-term commitments.

The nature of the firm is not simply a minimizer of transaction costs, but a kind of protective enclave from the potentially volatile and sometimes destructive, ravaging speculation of a competitive market. In the market the rational calculus depends upon the fragile price conven- tion which can often depend on ‘whim or sentiment or chance’. Habits and traditions within the firm are necessarily more enduring because they embody skills and information which cannot always or easily be codified or made subject to a rational calculus. what the tlrm achieves is an institutionalization of these rules and routines within a durable organizational structure. In consequence they are given some degree of permanence and guarded to some extent from the mood waves of speculation in the market.