The Strategic Management and Transaction Cost Nexus: Past Debates, Central Questions, and Future Research Possibilities

The role of transaction cost economics (broadly conceived) in developing research in strategic management has been a hotly debated topic over the last decade. This methodological essay develops the argument that transaction cost insights are more than merely useful complements to existing approaches to strategic management. Rather they are necessary for adequately understanding the nature of strategizing, because transaction costs are essential aspects of processes of creating, capturing and protecting value. If transaction costs are zero, these processes do not pose any strategic problems. However when transaction costs are positive, opportunities for value creation through the reduction of inefficiencies caused by transaction costs exist, and protecting and appropriating value are costly activities that dissipate value. The use in strategic management of models in which the fullest possible account of transaction costs is taken is contrasted with more constraining models, in particular the patched-up competitive equilibrium models that are now used as the benchmark models in some important parts of strategic management research, most notably in the core models of the resource-based view.