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Capabilities, Transaction Costs, and Firm Boundaries

Author

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  • Nicholas S. Argyres

    (Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130)

  • Todd R. Zenger

    (Olin Business School, Washington University in St. Louis, St. Louis, Missouri 63130)

Abstract

Although the literature on firm boundaries has been greatly influenced by transaction cost economics, strategy scholars often emphasize the importance of capabilities considerations in these decisions. This has led to a debate that, we suggest, has generated more heat than light. We argue that the two sets of considerations are in fact so intertwined dynamically that treating them as independent, competitive explanations is fundamentally misleading. We offer a theoretical synthesis of transaction cost and capabilities approaches to firm boundaries that seeks to overcome each approach's limitations and provides a unified and logically consistent understanding of boundary decisions.

Suggested Citation

  • Nicholas S. Argyres & Todd R. Zenger, 2012. "Capabilities, Transaction Costs, and Firm Boundaries," Organization Science, INFORMS, vol. 23(6), pages 1643-1657, December.
    • Handle: RePEc:inm:ororsc:v:23:y:2012:i:6:p:1643-1657
    DOI: 10.1287/orsc.1110.0736
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