The role of transaction cost economics in developing research in strategy has been a hotly debated topic over the last decade. This paper presents the radical argument that transaction cost insights are more than merely useful complements to existing approaches to strategy. Rather, they are necessary for adequately understanding the nature of strategizing. This is because transaction costs are essential aspects of processes of creating, capturing and protecting value. If transaction costs are zero, these processes do not pose any strategic problems; strategizing is trivialized in such a world. When transaction costs are positive, on the other hand, opportunities for value creation through the reduction of inefficiencies caused by transaction costs exist, and protecting and appropriating value are costly activities that dissipate value. Also, contracting and expectations enter as central aspects of strategizing. Arguments are provided for why economizing (with transaction costs) is more fundamental than strategizing (in the sense of exploiting market power). Thus, the paper argues that models in which the fullest possible account of transaction costs is made be used as the proper foundations and benchmarks for economics-based strategy research, rather than the patched-up competitive equilibrium models that are now used, more or less implicitly, as the benchmark in important parts of strategy research, most notably in the resource-based view.
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Paper provided by DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies in its series DRUID Working Papers with number
02-04.
Find related papers by JEL classification: D4 - Microeconomics - - Market Structure and Pricing D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Sergiu Hart, 2006.
"Shapley Value,"
Discussion Paper Series
dp421, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem.
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