Overcoming Cournot's dilemma on increasing returns and competition

This paper shows that the Cournot-Marshall dilemma on the incompatibility of increasing returns and competition may be overcome under an integrated theory of the firm that takes into account not only returns to scale but also knowledge and transaction cost considerations. Knowledge and transaction-based considerations help to understand why, contrary to predictions, the tendency towards an increased dimension and monopoly may not operate in spite of the presence of significant economies of scale. It is argued that the boundaries of the firm cannot be attributed solely to one single cause, but are instead the result of the interplay between knowledge-, scale-scope- and transaction-based considerations. This interaction favours the emergence of a variety of organisational structures and the coexistence of different sizes even in the same sector of activity.