> and that in fact it is how the free market and thus the economy of most nations actually functions, without any hierarchy.

There is a hierarchy of sorts (realistically, something more like a cyclic graph, but close enough for all intents and purposes). The customer gets food from the grocery store -> who gets food from a wholesaler -> who gets food from a processor -> who gets food from the farmer. But at no point, despite being an exceptionally complex system, do you need to exceed a small number of people per team.

> thus you avoid the need of hierarchical management.

Right, so I expect this is where the miscommunication is happening. You're not wrong that the consumer of food manages the grocery store. Absolutely that is true. Of course it is. And in that sense, some kind of hierarchical (or whatever we want to see the graph as) management will emerge. That is a necessary precondition for an economy to exist.

Contextually, though, management was seen in a more vileness way, which does tend to happen when communication overhead starts to overburden the people, leaving actors to be faceless "cogs". This is what small teams avoid.

> but as a series of huge conglomerates

Which don't operate as monoliths. Internally they function as a series of smaller businesses, and inside that even smaller business, until you whittle the teams down into a small number of people. Maybe not exactly 4-8, but certainly within that order of magnitude. A person can only communicate with so many other people before all hours of the day are exhausted.

> The idea of a free market where buyers and sellers meet and negotiate prices based on supply and demand is largely a myth

Okay... Sure? Is there some reason for us to randomly start talking about a "free market" here? It was never mentioned before.

> not supply and demand based

I don't follow. Supply and demand is not some kind of foundation on which something is based. It is observance of social behaviour, typically that of humans, but applies even to animals. Supply and demand is every bit as much present in the development of Linux as everything else humans do with other humans. It is fundamental.

> but instead organized in a relatively rigid hierarchy.

Instead? They are not at odds with each other.

> I gave the example of how much it costs a company to buy a piece they need versus how much it costs them to produce it internally.

Which didn't seem to serve a purpose. If all else is equal, it costs the same. Presumably you are referring to a case where you can buy a subcomponent externally for $10 or produce it internally for $5? But given that buyers are willing to pay $10, you lose $5 every time you keep it for internal use. So, in both cases, it costs you $10. There is no free lunch.

> This is meant to show that a supply&demand based self-organizing market (the flat, many small teams without managers model) is less efficient than an integrated supply chain

The data doesn't support this, though. Statistically, smaller businesses in coordination with each other are more efficient. You'll notice large businesses only become large when they can build some kind of moat. In the case of software, that mostly means hiding behind copyright and patent protections.