Handbook on the Economics and Theory of the Firm
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Handbook on the Economics and Theory of the Firm

Edited by Michael Dietrich and Jackie Krafft

This unique Handbook explores both the economics of the firm and the theory of the firm, two areas which are traditionally treated separately in the literature. On the one hand, the former refers to the structure, organization and boundaries of the firm, while the latter is devoted to the analysis of behaviours and strategies in particular market contexts. The novel concept underpinning this authoritative volume is that these two areas closely interact, and that a framework must be articulated in order to illustrate how linkages can be created.
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Chapter 20: Modern Resource-based Theory(ies)

Nicolaï Foss and Nils Stieglitz


Nicolai J. Foss and Nils Stieglitz 20.1 INTRODUCTION Almost since its inception, strategic management has been heavily indebted to economics, particularly mainstream economics (Porter, 1981; Camerer, 1994; Rumelt et al., 1994; Hoskisson et al., 1999; Foss, 2000; Lockett and Thompson, 2001; Gavetti and Levinthal, 2004; Agarwal and Hoetker, 2007). This is hardly surprising: central, arguably the central, constructs of strategic management – namely, value creation, value appropriation and sustained competitive advantage – lend themselves directly to an economics interpretation. The notion that all of strategic management ultimately boils down to creating and appropriating more value than the competition (e.g., Peteraf and Barney, 2003) can be usefully addressed in terms of the established economics corpus of applied price theory, industrial organization theory, game theory and bargaining theory. Not surprisingly, modern strategic management theory is often presented as beginning from some ‘competitive imperfection’ (Knott, 2003): ultimately, some deviation from the Walrasian general equilibrium model, or, in some formulations, from the zero transaction cost setting of the Coase theorem (Foss and Foss, 2005), leading to imperfect factor and/or product markets, explains strategy’s central dependent variable, sustained competitive advantage. As Knott (2003, p. 929) argues, ‘[t]he field of strategy is concerned with the conditions under which the microeconomic equilibrium of homogeneous firms with zero profits can be overcome’. All modern economics-based approaches have taken this approach, beginning with Michael Porter’s (1980, 1985) work, essentially an application of the industrial organization economics of Bain (1956) and Scherer (1980) (cf. Porter, 1981). Later currents in industrial organization,...

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