22 T HE O PEN I NNOVATION M ARKETPLACE Transaction Costs and Vertical Integration Ronald Coase was a professor emeritus of economics at the Uni- versity of Chicago Law School when he won the 1991 Nobel Prize in economics. The economic theories that earned him this distinction centered around a seminal paper he wrote in 1937 entitled "The Nature of the Firm." 2 The phenomenon of the corporation had been evident for several decades, and Coase was looking to explain the logic behind its existence. Marketplaces had already existed for cen- turies, and no doubt millennia, prior to the birth of the corporation. In a marketplace, the raw materials to make a new product are pur- chased right before the item, whether shoe or carriage, is crafted. The saddle maker purchases leather ready for cutting and sewing into the new desired shape. The new automobile maker could likewise purchase steel, as needed, to assemble its product. And yet, what was later to be described as vertical integration was evident everywhere. Rather than rely solely upon the market-