The Firm: Disco Corp. and Ronald Coase

For over twenty years, Disco Corp., a Japanese powerhouse with annual revenues of $25 billion, has approached its operations with a rather unconventional philosophy: treating its 7,000 employees as if they were independent contractors thriving in a free market. This 87-year-old company is responsible for manufacturing three-quarters of all machines used to cut, grind, and dice semiconductors. A fascinating article in the Financial Times (Harry Dempsey and David Keohane, “Can You Run a Company as a Perfect Free Market? Inside Disco Corp,” Financial Times, May 1, 2025) sheds light on their radical experiment:

Since 2011, Disco has embarked on a bold experiment to run a blue-chip company solely on free-market principles. In this unique structure, no one has a boss, and superiors are unable to direct juniors. Each day, employees are free to select whichever tasks they wish to undertake, with the option to switch teams or even resign at their discretion.

Within this realm of complete autonomy, employees navigate their decisions based on an internal currency called Will. They earn Will by completing tasks and engage in bartering and competitive auctions with colleagues for the opportunity to take on tasks. Fines in Will are imposed for actions that could harm the company or diminish productivity. Ultimately, the balance of Will dictates the bonuses employees receive every three months. …

The CEO emphasizes that his door is always open to even the most junior employees—provided they are willing to spend 165,000 Will for a mere 30 minutes of his time.

The supply of Will is generated from sales and trickles down through the organization via exchanges and auctions, allowing individuals seeking tasks (demand) to connect with those willing to perform them (supply) to negotiate prices. If a sales team requires a new machine to be designed or modified, they simply need to offer the manufacturing team enough Will to make the project worthwhile. An IT system manages these auctions and transfers seamlessly.

However, not every aspect of Disco operates under pure market logic. A mere 40% of employee bonuses are tied to their Will balance, and the human resources department monopolizes recruitment. The CEO, akin to a central bank, can create Will at will (forgive the pun) for special projects. As the Financial Times puts it, he presents himself as a “benevolent autocrat.” Notably, there isn’t a currency market for Will, which isn’t genuinely money. Instead, the company resembles a “village community” more than a detached market. Ironically, Disco’s official website portrays it as a conventional corporation with a social mission, corporate social responsibility, and stakeholder engagement.

The contrast between a firm and a market is straightforward for anyone familiar with Ronald Coase’s influential article, “The Nature of the Firm” (Economica, 1937). The notion of running a firm like a market may sound appealing, but it raises a fundamental question: Why do hierarchical firms exist in free markets? Coase posited that firms exist to minimize the transaction costs associated with market activities. These costs include finding subcontractors instead of hiring employees, determining relevant prices, negotiating numerous contracts for every project, and attempting to predict fluctuating market conditions. When these transaction costs exceed the costs of organizing and managing a firm, entrepreneurs or investors typically prefer the latter route.

For decades, Charles Koch and his late brother David have operated a similarly inspired, albeit less radical, framework known as “Market-Based Management” (MBM) within their company, Koch Industries, the largest privately held corporation in the U.S. This firm has experienced rapid growth. More commonly, many corporations incorporate market-like incentives, including some internal competition, into their management structures. Disco Corp. has taken this concept to an entirely different level.

The debate over whether a firm is a hierarchical-authoritarian entity or a free-market microcosm exists along a spectrum. On one hand, every firm in a free society possesses market features, if only through the freedom of employees to leave and the absence of physical coercion. Conversely, a one-person business may form long-lasting relationships with specific contractors or suppliers. Elements of diversity, entrepreneurship, and innovation—hallmarks of free markets—offer insights into the most effective corporate structures in various contexts. Yet, Coase’s insight remains unassailable, and Disco Corp. represents an experiment at the very edge of possibility. The ambition to completely convert a firm into a market feels as unrealistic (though not perilous) as the utopian vision of supplanting the market with an organization.

One undeniable benefit of a free-market economy is the promotion of free enterprise and micro-level experimentation. The free market serves as the abstract environment within which voluntary organizations thrive.

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