This article reviews the strategic decision making literature by focusing on the dominant paradigms–i.e., rationality and bounded rationality, politics and power, and garbage can. We review the theory and key empirical support, and identify emergent debates within each paradigm. We conclude that strategic decision makers are boundedly rational, that power wins battles of choice, and that chance matters. Further, we argue that these paradigms rest on unrealistic assumptions and tired controversies which are no longer very controversial. We conclude with a research agenda that emphasizes a more realistic view of strategic decision makers and decision making, and greater attention to normative implications, especially among profit‐seeking firms in global contexts.

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Strategists following the resource-based view argue that firms can generate rents through value creation. To create value, firms develop and use resources and capabilities that other firms cannot imitate, trade for, or substitute other assets for. Even a firm that has created value, however, may not capture the potential rents associated with that value. To capture rents, a firm must set the right prices for what it sells. Most views of pricing assume that a firm can readily set appropriate prices. In contrast, we argue that pricing is a capability. To develop the ability to set the right prices, a firm must invest in resources and routines. We base our argument on a study of the pricing process of a large Midwestern manufacturing firm. We show that pricing resources, routines, and skills may help or inhibit a firm in setting the right price-and hence in appropriating value created. Our view of pricing as a capability contributes to the resourcebased view because it suggests that strategists should consider the portfolio of value creation and value appropriation capabilities a firm uses to create competitive advantage. Our view also contributes to economics because it suggests that strategic decisions about pricing capabilities have important implications for a fundamental economic action, determining prices. Managers in firms without effective pricing processes may be unable to set prices that reflect the wishes of its customers, so the customers may misuse their resources. As a result, resources may be used ineffectively. Our view of pricing as a capability therefore takes the resource-based-view straight to the heart of what is perhaps the central economic question: the best use of resources.

Abstract-We study the price adjustment practices and provide quantitative measurement of the managerial and customer costs of price adjustment using data from a large U.S. industrial manufacturer and its customers. We nd that price adjustment costs are a much more complex construct than the existing industrial-organization or macroeconomics literature recognizes. In addition to physical costs (menu costs), we identify and measure three types of managerial costs (information gathering, decision-making, and communication costs) and two types of customer costs (communication and negotiation costs). We nd that the managerial costs are more than 6 times, and customer costs are more than 20 times, the menu costs. In total, the price adjustment costs comprise 1.22% of the company's revenue and 20.03% of the company's net margin. We show that many components of the managerial and customer costs are convex, whereas the menu costs are not. We also document the link between price adjustment costs and price rigidity. Finally, we provide evidence of managers' fear of antagonizing customers.I have no answer to the question of how to measure these menu change costs, but these [menu cost] theories will never be taken seriously until an answer is provided.Edward Prescott (1987, p. 113) Given the large number of theoretical papers that evaluate the implications of [price] adjustment costs, obtaining direct evidence that such costs are present seems crucial.Margaret Slade (1998, p. 104)

We analyze the microfoundations of the routine in a study of price-adjustment processes at a manufacturing firm. Existing theory says that truces balance cognitive and motivational differences across functions, but there is scant evidence on how truces work. We show both stability and change in routines. For minor price adjustments, routines incorporate truces in stable but separate market interpretations by the sales and marketing groups. Major price changes put truces at risk, as latent conflict over information and interests becomes overt. The ensuing battle shows how interests, information, and truces are intertwined in performing the routine. Routines are not just stable entities, but adaptive performances that include conflict. We illustrate how our approach addresses fundamental problems such as how firms perform economics, how routines incorporate economic theory, and how routines shape macroeconomic dynamics. We argue that our approach can be extended to any routine-based organizational work.