The (New) Nature and Essence of the Firm

11 Pages Posted: 2 Jun 2010

See all articles by Christos N. Pitelis

Christos N. Pitelis

University of Cambridge - Centre for International Business and Management (CIBAM)

David Teece

Institute for Business Innovation

Date Written: 2009

Abstract

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 quasi-sustainable competitive advantage) is its essence. This is non-separable from its nature and objectives. It often involves market co-creation.

Suggested Citation

Pitelis, Christos N. and Teece, David J., The (New) Nature and Essence of the Firm (2009). European Management Review, Vol. 6, Issue 1, pp. 5-15, 2009. Available at SSRN: https://ssrn.com/abstract=1619530 or http://dx.doi.org/10.1057/emr.2009.1

Christos N. Pitelis (Contact Author)

University of Cambridge - Centre for International Business and Management (CIBAM)

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

David J. Teece

Institute for Business Innovation ( email )

F402 Haas School of Business, #1930
Berkeley, CA 94720-1930
United States
(510) 642-4041 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
5
Abstract Views
650
PlumX Metrics