Title: Real options, resources and transaction costs: advancing the strategic theory of the firm

Authors: Nicolai J. Foss, Ellen Roemer

Addresses: Center for Strategic Management and Globalization, Copenhagen Business School, Porcelaenshaven 24, 2nd fl., 2000 Frederiksberg, Denmark; Department of Strategy and Management, Norwegian School of Economics and Business Administration, Breiviksveien 40, N-5045, Bergen, Norway. ' Marketing Group, Bradford University School of Management, Emm Lane, Bradford BD9 4JL, West Yorkshire, UK

Abstract: In the past, Transaction Cost Economics (TCE) and the Resource-Based View (RBV) have contributed strongly to the development of the strategic theory of the firm, that is strategic management theory with foundations in the theory of the firm. While TCE has given answers to the fundamental question of the existence and the boundaries of the firm (scope), the RBV has focused on the question why firms differ from each other (heterogeneity). However, both theories lack a dynamic perspective, including adaptation to change and uncertainty. We argue that Real Options Theory (ROT) can remedy this shortcoming. The aim of the paper is therefore to integrate the complementary perspectives of ROT, the RBV and TCE in order to advance the strategic theory of the firm. In doing so, we simultaneously extend ROT by addressing issues in strategic management, which have been neglected so far. We derive testable propositions from our argument and discuss managerial implications as well as limitations and extensions.

Keywords: capabilities; competitive advantage; dynamics; economic organisation; resources; real options theory; theory of the firm; strategy; value; transaction costs; transaction cost economics; TCE; resource-based view; RBV; strategic management.

DOI: 10.1504/IJSCM.2010.032523

International Journal of Strategic Change Management, 2010 Vol.2 No.1, pp.73 - 92

Published online: 04 Apr 2010 *

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