Real options, resources and transaction costs: advancing the strategic theory of the firm

In the past, Transaction Cost Economics (TCE) and the Resource-Based View (RBV) have contributed strongly to the development of the strategic theory of the firm, that is strategic management theory with foundations in the theory of the firm. While TCE has given answers to the fundamental question of the existence and the boundaries of the firm (scope), the RBV has focused on the question why firms differ from each other (heterogeneity). However, both theories lack a dynamic perspective, including adaptation to change and uncertainty. We argue that Real Options Theory (ROT) can remedy this shortcoming. The aim of the paper is therefore to integrate the complementary perspectives of ROT, the RBV and TCE in order to advance the strategic theory of the firm. In doing so, we simultaneously extend ROT by addressing issues in strategic management, which have been neglected so far. We derive testable propositions from our argument and discuss managerial implications as well as limitations and extensions.

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