Firm boundaries and transaction costs: The complementary role of capabilities |
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| Affiliation: | 1. Color Line AS, Filipstadveien 25, 0250 Oslo, Norway;2. Marketing Department, Albers School of Business & Economics, Seattle University, Pigott 529, 901 12th Avenue, Seattle, WA 98122, USA;3. University College of Southeast Norway, School of Business, P.O.Box 164 Sentrum, N-3502 Hønefoss, Norway;1. School of Business and Social Sciences, Department of Business Development and Technology, Aarhus University, Denmark;2. Department of Management, School of Management & Economics, University of Turin, Italy;3. Research Fellow of the Laboratory for International and Regional Economics, Graduate School of Economics and Management, Ural Federal University, Russia;4. Department of Marketing, Management and International Business, Oulu Business School, University of Oulu, Finland;5. Department of Strategy & International Business, Birmingham Business School, University of Birmingham, United Kingdom;1. Department of Business Administration, National Chengchi University, No. 64, Sec. 2, Zhi-Nan Rd., Wenshan District, Taipei 11605, Taiwan;2. Department of International Business, National Dong Hwa University, No. 1, Sec. 2, Da Hsueh Rd., Shoufeng, Hualien 97401, Taiwan;3. Department of Tourism and Leisure, Lunghwa University of Science and Technology, No. 300, Sec. 1, Wanshou Rd., Guishan Shiang, Taoyuan County 33306, Taiwan |
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| Abstract: | This research addresses five criticisms of Transaction Cost Economics (TCE) as the dominating view of boundary decision as follows. First, “Firm Failure” is conceptualized as a counterpart to “Market Failure”. Second, real variance in opportunism (lack of trustworthiness) substitutes for TCE's assumption of universal marketplace opportunism. Third, transaction costs are included as a mediating variable to investigate the theory's “alleged” causal mechanism. Fourth, “Firm Failure” implies that internal to the firm transaction costs increase when Dynamic Capabilities (DC) are low for insourced activities and decrease when DC is high. Finally, this study of buyer-seller relationships indicates that TCE overemphasizes the role of marketplace transaction costs, and the impact of DC is much greater on firm boundary decisions as TCE and DC explain 21 and 53% of Vertical Integration, respectively. Additionally, a model combining both views explains 63%, illustrating the complementarity of these views for both suppliers and customers. |
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