A Historical Comparison of Resource-Based Theory and Five Schools of Thought Within Industrial Organization Economics: Do We Have a New Theory of the Firm?

Abstract

A resource-based approach to strategic management focuses on costly-to-copy attributes of the firm as sources of economic rents and, therefore, as the fundamental drivers of performance and competitive advantage. Interest presently exists in whether explicit acknowledgement of the resource-based view may form the kernel of a unifying paradigm for strategy research. This article addresses the degree to which a resource-based view represents a fundamentally different approach from theories used in industrial organization (10) economics. The central thesis is that, put informal terms, the resource-based approach is reaching for a theory of the firm. To determine its distinctiveness in comparison to IO, therefore, an appropriate comparison is with other theories of the firm developed within that tradition. Section I summarizes and analyzes five theories that have been significant in the historical evolution of IO. These are neoclassical theory's perfect competition model, Bain-type IO, the Schumpeterian and Chicago responses, and transaction cost theory. The first part of Section II analyzes the resource-based approach in terms of similarities to and differencesfrom these IO-related theories. The conclusion is that resource-based theory both incorporates and rejects at least one major element from each of them; thus resource-based theory reflects a strong IO heritage, but at the same time incorporates fundamental differences from any one of these theories. The second part of Section II analyzes resource-based theory as a new theory of the firm.

Modern Resource-Based Theory(ies)

“…Following in the tradition of Peteraf (1993) Transaction Costs and property rights. Some proponents of the RBV have tried to separate it from the more mainstream economics of the firm (e.g., Conner, 1991;Conner & Prahalad, 1996), and have argued that the RBV has the potential to develop into a distinct theory of the firm. It has become increasingly clear, however, that not only are the RBV and mainstream economics insights in transaction costs and property and how these shape economic organization highly complementary, there is also a very significant overlap (Foss, 1996;Silverman, 1999;Nickerson & Zenger, 2004;Argyres & Zenger, 2010).…”

Internationalisation of publicly traded family firms: a transaction cost theory perspective and longitudinal analysis

“…In the following sections, we use TCT to examine whether and how family ownership and family's involvement in the management and the board of directors of publicly traded firms influence internationalisation. By explaining how family's involvement influences the strategic decisions of family firms within the framework of TCT, we contribute to the advancement of the theory of the family firm (Chrisman, Chua and Sharma, 2005;Conner, 1991).…”

Study on theories and mechanisms of corporate governance

“…Total value is the sum of values of all financial claims on the firm -including equity, debt, preferred stock and warrants (Jensen, 2002). The ultimate purpose of the firm is to maximise profits; different theories of firms differ not with regard to firm's fundamental objective (of making money), rather with regard to the primary means through which firms attempt to realise this objective (Conner, 1991). However, on the other hand stakeholder theory says that managers should make all decisions so as to take account of the interests of all the stakeholders in a firm (Jensen, 2002).…”