Uncovering the Hidden Transaction Costs of Market Power: A Property Rights Approach to Strategic Positioning

Managerial and Decision Economics, Forthcoming

42 Pages Posted: 30 Sep 2017

See all articles by Kirsten Foss

Kirsten Foss

Copenhagen Business School - Department of Industrial Economics & Strategy (IVS)

Nicolai J. Foss

Copenhagen Business School - Department of Strategy and Innovation

Peter G. Klein

Baylor University - Hankamer School of Business; Norwegian School of Economics (NHH) - Department of Strategy and Management; Ludwig von Mises Institute

Date Written: September 28, 2017

Abstract

A central construct in competitive strategy research is market power, the ability to raise price above marginal cost. Positioning research focuses on attempts to build, protect, and exercise market power. However, this approach contains hidden assumptions about transaction costs. Parties made worse off by the exercise of market power can negotiate, bargain, form coalitions, and otherwise contract around the focal firm’s attempts to appropriate monopoly profits — depending on transaction costs. We build on property-rights economics to explain how transaction costs affect positioning and offer propositions about successful positioning in an environment with transaction costs.

Keywords: Competitive Positioning, Contracting, Property Rights, Transaction Costs

JEL Classification: L10, L22, D22

Suggested Citation

Foss, Kirsten and Foss, Nicolai J. and Klein, Peter G., Uncovering the Hidden Transaction Costs of Market Power: A Property Rights Approach to Strategic Positioning (September 28, 2017). Managerial and Decision Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3044609 or http://dx.doi.org/10.2139/ssrn.3044609

Kirsten Foss

Copenhagen Business School - Department of Industrial Economics & Strategy (IVS) ( email )

Howitzvej 60, 6
Frederiksberg, DK-2000
Denmark

Nicolai J. Foss

Copenhagen Business School - Department of Strategy and Innovation ( email )

Kilen
Frederiksberg, 2000
Denmark

Peter G. Klein (Contact Author)

Baylor University - Hankamer School of Business ( email )

Waco, TX 76798
United States
254-710-4903 (Phone)

Norwegian School of Economics (NHH) - Department of Strategy and Management ( email )

Breiviksveien 40
N-5045 Bergen
Norway

Ludwig von Mises Institute ( email )

Auburn, AL
United States

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