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Environmental change and rational failure of the firm: application of an integrated model of transaction costs and dynamic capacities

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  • Kenshu Kikuzawa

    (Keio University
    Josai University)

Abstract

The prevailing traditional paradigm is a classic dichotomous view—firms either succeed rationally or fail irrationally. However, in today’s constantly changing environment, there may be an intermediate phenomenon in which firms fail rationally or succeed irrationally. To address this issue, we develop a new integrated model based on transaction cost economics and the dynamic capability perspective. This model provides a theoretical explanation for the existence of this phenomenon and a method to avoid it. To empirically validate this theoretical explanation, we employ a qualitative case study of film companies Kodak and Fujifilm. The findings reveal that when a firm adapts to environmental changes, it incurs transaction cost to persuade resistors and saves opportunity costs over existing assets by means of self-transformation. In a situation of environmental change, based on the cost structure, a firm could fail rationally and succeed either rationally or irrationally. This study offers a theoretical explanation for the phenomenon of rational failure from the perspective of organizational economics. It also provides a theoretical explanation for the type of rational failure treated by Levinthal and March (Strateg Manag J 14:95–112, 1993) and for another intermediate phenomenon known as irrational success.

Suggested Citation

  • Kenshu Kikuzawa, 2024. "Environmental change and rational failure of the firm: application of an integrated model of transaction costs and dynamic capacities," SN Business & Economics, Springer, vol. 4(3), pages 1-23, March.
    • Handle: RePEc:spr:snbeco:v:4:y:2024:i:3:d:10.1007_s43546-024-00629-2
    DOI: 10.1007/s43546-024-00629-2
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    References listed on IDEAS

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    1. James G. March, 1991. "Exploration and Exploitation in Organizational Learning," Organization Science, INFORMS, vol. 2(1), pages 71-87, February.
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    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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