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

45 Pages Posted: 17 Feb 2010

See all articles by Nicholas Argyres

Nicholas Argyres

Washington University in St. Louis

Todd Zenger

University of Utah

Date Written: February 16, 2010


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 differences are largely the creatures of past boundary decisions made on the basis of transaction cost considerations. Therefore, 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: capabilities, transaction costs, vertical integration

JEL Classification: L22, L23

Suggested Citation

Argyres, Nicholas and Zenger, Todd R., Capabilities, Transaction Costs and Firm Boundaries: A Dynamic Perspective and Integration (February 16, 2010). Atlanta Competitive Advantage Conference 2010 Paper, Available at SSRN: or

Nicholas Argyres (Contact Author)

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

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)

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