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Capabilities and Coherence in Firms and Markets


  • Richard N. Langlois

    (University of Connecticut)


There is a tradition in the literature of transaction-cost economics that seeks to explain the existence of firms in terms of the inherent superiority of firms as an organizational form in some circumstances. The problem with these arguments is that they tend to contrast real firms with an idealized -- and extremely narrow -- picture of the market. This paper draws on the evolutionary theory of the firm in economics and the resource-based view of the firm in strategic management in order to elucidate the concepts of firm and market. Its central thesis is that firms do not exist because they are inherently superior to markets (that is, to markets at their best). Rather, firms exist because they are superior to particular markets at particular times and places. The explanation for the existence of firms is thus a historically contingent one in many respects.

Suggested Citation

  • Richard N. Langlois, 1993. "Capabilities and Coherence in Firms and Markets," Industrial Organization 9309003, EconWPA.
  • Handle: RePEc:wpa:wuwpio:9309003
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    References listed on IDEAS

    1. Ernst R. Berndt & Zvi Griliches, 1993. "Price Indexes for Microcomputers: An Exploratory Study," NBER Chapters,in: Price Measurements and Their Uses, pages 63-100 National Bureau of Economic Research, Inc.
    2. Gandal, N., 1992. "Hedonic Price Indexes for Spreadsheets and an Empirical Test of the Network Externalities Hypothesis," Papers 18-92, Tel Aviv.
    3. David, Paul A, 1985. "Clio and the Economics of QWERTY," American Economic Review, American Economic Association, vol. 75(2), pages 332-337, May.
    4. Church, Jeffrey & Gandal, Neil, 1993. "Complementary network externalities and technological adoption," International Journal of Industrial Organization, Elsevier, vol. 11(2), pages 239-260, June.
    5. Gilbert, Richard J, 1992. "Symposium on Compatibility: Incentives and Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 1-8, March.
    6. Robert J. Gordon, 1987. "The Postwar Evolution of Computer Prices," NBER Working Papers 2227, National Bureau of Economic Research, Inc.
    7. Trajtenberg, Manuel, 1989. "The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 444-479, April.
    8. Katz, Michael L & Shapiro, Carl, 1992. "Product Introduction with Network Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 55-83, March.
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    Cited by:

    1. Takehiko Isobe & Shige Makino & David Montgomery, 2008. "Technological capabilities and firm performance: The case of small manufacturing firms in Japan," Asia Pacific Journal of Management, Springer, vol. 25(3), pages 413-428, September.
    2. P.P.M.A.R. Heugens, 2004. "A Neo-Weberian Theory of the Firm," Working Papers 04-02, Utrecht School of Economics.
    3. Montgomery, David B. & Isobe, Takehiko & Makino, Shige & Lee, Kong Chian, 2007. "Technological Capabilities and Firm Performance: The Case of Small Manufacturing Firms in Japan," Research Papers 1980, Stanford University, Graduate School of Business.

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    JEL classification:

    • L - Industrial Organization


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