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The (new) nature and essence of the firm

  • Pitelis, Christos
  • Teece, David

Extant explanations of the nature and scope of firms, such as transaction costs, property rights, metering and “resources” can be integrated into a more general (capability based) theory of the nature and essence of the firm that recognizes the importance to the firm of creating (and capturing) value from innovation. We note that the appropriability of returns from creative and innovative activity often requires the entrepreneurial creation and co-creation of markets. Accordingly, market failure and transaction costs approaches need to be revamped to capture the essence of entrepreneurial and managerial activity that extends beyond the mere exercise of authority. We suggest that the nature and objective of the firm in an economy with innovation and incomplete markets is to capture value (profit) from its advantages and actions; and that the way in which the firm tries to achieve this (by establishing quasisustainable competitive advantage) is its essence. This is non-separable from its nature and objectives.

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File URL: http://mpra.ub.uni-muenchen.de/24317/1/MPRA_paper_24317.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24317.

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Date of creation: 2009
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Publication status: Published in European Management Review 1.6(2009): pp. 5-15
Handle: RePEc:pra:mprapa:24317
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Web page: http://mpra.ub.uni-muenchen.de

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  1. Jongwook Kim & Joseph T. Mahoney, 2005. "Property rights theory, transaction costs theory, and agency theory: an organizational economics approach to strategic management," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 223-242.
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  10. Christos N. Pitelis, 2002. "Stephen Hymer: Life and the Political Economy of Multinational Corporate Capital," Contributions to Political Economy, Oxford University Press, vol. 21(1), pages 9-26, December.
  11. Feldman, Maryann P, 2001. "The Entrepreneurial Event Revisited: Firm Formation in a Regional Context," Industrial and Corporate Change, Oxford University Press, vol. 10(4), pages 861-91, December.
  12. Witt, Ulrich, 1998. "Imagination and leadership - The neglected dimension of an evolutionary theory of the firm," Journal of Economic Behavior & Organization, Elsevier, vol. 35(2), pages 161-177, April.
  13. Christos N. Pitelis & Anastasia N. Pseiridis, 1999. "Transaction costs versus resource value?," Journal of Economic Studies, Emerald Group Publishing, vol. 26(3), pages 221-240, September.
  14. Christos N. Pitelis, 2004. "(Corporate) Governance, (Shareholder) Value and (Sustainable) Economic Performance," Corporate Governance: An International Review, Wiley Blackwell, vol. 12(2), pages 210-223, 04.
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  30. Pitelis, Christos, 2009. "The co-evolution of organizational value capture, value creation and sustainable advantage," MPRA Paper 23937, University Library of Munich, Germany.
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