Capabilities, Transaction Costs, and Firm Boundaries: A Dynamic Perspective and Integration

38 Pages Posted: 9 Jan 2008 Last revised: 5 Nov 2010

See all articles by Todd Zenger

Todd Zenger

University of Utah

Nicholas S. Argyres

Boston University - School of Management

Date Written: June 1, 2008

Abstract

A large literature has developed in recent years that attempts to compare transaction cost and capabilities explanations of firms' vertical boundaries. Much of this literature has treated comparative capabilities (buyers' vs. potential suppliers') as determinants that are independent of transaction costs, based on the idea that capabilities theories of the firm are distinct from the transaction cost theory of the firm. We argue that this approach is mistaken. We contend that capabilities and transaction cost determinants interact with each other dynamically, and that the two theories of the firm cannot be conceptually distinguished. We then seek to articulate an integrated perspective that incorporates both capabilities and transaction cost logic. Our argument carries implications for theories of the firm, and for empirical research aimed at testing those theories.

Keywords: transaction costs, firm boundaries, capabilities

JEL Classification: L22

Suggested Citation

Zenger, Todd R. and Argyres, Nicholas S., Capabilities, Transaction Costs, and Firm Boundaries: A Dynamic Perspective and Integration (June 1, 2008). Available at SSRN: https://ssrn.com/abstract=1081857 or http://dx.doi.org/10.2139/ssrn.1081857

Todd R. Zenger

University of Utah ( email )

David Eccles School of Business
1655 East Campus Center Drive
Salt Lake City, UT 84112
United States
801 585-3981 (Phone)
801 581-7939 (Fax)

Nicholas S. Argyres (Contact Author)

Boston University - School of Management ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 353-4152 (Phone)
(617) 353-5003 (Fax)

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