Value creation: incorporating elements from transaction cost economics into the porterian perspective

This theoretical essay examines the role of transaction costs along the value chain from a Porterian perspective, aiming to propose a conceptual apparatus that combines the view of the firm as a set of activities connected by links with that of the firm as a nexus of transactions and costs that cause loss of value. Using the literature on transaction cost economics and Porter's competitive advantage, we elaborated a framework that separates value creation by a firm into three dimensions: value created by the activities, activity costs and cost of links. We also recognize that link costs are moderated by a firm's institutional matrix, governance structures, and economies of scale and scope. The incorporation of these constructs is this paper's primary contribution. We concluded that despite having differing orientations regarding profitability, the Porterian perspective and transaction cost economics have the potential for integration since analysis of value creation in the firm is incomplete when only using one of the approaches.