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22 Revisiting Chandler on the theory of the firm Steven Toms and John F. Wilson 22.1 INTRODUCTION In three influential books, Strategy and Structure (1962), The Visible Hand (1977) and Scale and Scope (1990), Alfred Chandler (1918–2007) made a seminal contribution to the development of the theory of the firm in the second half of the twentieth century. Specifically, Chandler’s theory of the firm was developed from detailed empirical observation, rather than formal model building, providing a commentary on the rise of the large managerial corporation. Although Chandler’s contribution to the theory of the firm is therefore somewhat implicit, it is clear from subsequent work by a range of social scientists that he is regarded as one of the key twentieth-century influences on this and other dimensions of economic and management theory. A great deal of subsequent theory-building in organizational economics, transaction cost theory, new institutional economics and the resource-based view of the firm has accordingly acknowledged a debt to Chandler’s earlier empirical work. His theory of the firm is a theory of the large firm, or a theory of why large firms are successful. It is controversial, and implies a universally applicable model of business organization, as a consequence of which he has attracted considerable criticism. To describe these theories, accommodating this critique, and to suggest extensions, the chapter is structured as follows. We first describe the economic components of Chandler’s model. These components require extraction from Chandler’s work, in view of the strong empirical orientation of most...
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