The Elgar Companion to Transaction Cost Economics
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The Elgar Companion to Transaction Cost Economics

Edited by Peter G. Klein and Michael E. Sykuta

Since its emergence in the 1970s, transaction cost economics (TCE) has become a leading approach in the research on contracts, firm organization and strategy, antitrust, marketing, inter-firm collaboration and entrepreneurship. With contributions by leading scholars in economics, law and business administration – including Oliver E. Williamson, recipient of the 2009 Nobel Prize in economics for his development of the transaction cost approach – this volume reviews the latest developments in TCE and applies them to contemporary theoretical and empirical problems.
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Chapter 15: Economizing and Strategizing

Jackson A. Nickerson and James C. Yen


Jackson A. Nickerson and James C. Yen Research in business strategy explores how organizations create and capture economic value. Two of the leading economic approaches that inform this field are the economizing and strategizing perspectives. In this chapter we define and explore the strengths and weaknesses of both perspectives. In particular, we explore the relationship between economizing and strategizing perspectives and how they interact to inform each other. Our exploration focuses on sunk costs as a central premise in both perspectives as they apply to business strategy. Finally, we assess the extent to which these perspectives provide necessary and sufficient perspectives for business strategy. What is business strategy? Successful firms are believed to have unique business strategies that create value for customers by producing products and services at sufficiently low outlays such that resulting profits exceed the cost of capital. A necessary condition to maintain these profits appears to be that actual and potential competitors find it difficult to imitate the strategy. Yet, business strategy is a term that has many definitions in business and academic arenas (Ghemawat et al., 2001, Chapter 1). For instance, scholars have defined strategy as ‘a long-term plan’ (Chandler, 1962, p. 13), ‘actions of player’ (Camerer, 1991, p. 139), and ‘fit’ among internal activities (Porter, 1996, p. 70). Although managers and scholars have different definitions for strategy, all can agree that ‘strategic decisions are concerned with the long-term health of the enterprise’ (Chandler, 1962, p. 11). A course on business strategy in the Masters in...

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