Abstract
Transaction cost economics (TCE), and more specifically the version of TCE that has been developed by Oliver Williamson (1975, 1985, 1993b), has become an increasingly important anchor for the analysis of a wide range of strategic and organizational issues of considerable importance to firms. As argued by some of its key proponents, the theory aims not only to explain but also to influence practice (Masten, 1993). In this article, we argue that prescriptions drawn from this theory are likely to be not only wrong but also dangerous for corporate managers because of the assumptions and logic on which it is grounded. Organizations are not mere substitutes for structuring efficient transactions when markets fail; they possess unique advantages for governing certain kinds of economic activities through a logic that is very different from that of a market. TCE is “bad for practice” because it fails to recognize this difference. We identify some of the sources of the “organizational advantage” and argue for the ...
Keywords
Transaction costEconomicsSociologyBusinessIndustrial organizationManagementOperations managementMicroeconomics
Affiliated Institutions
Related Publications
BAD FOR PRACTICE: A Critique of the Transaction Cost Theory.
Organizations are not mere substitutes for structuring efficient transactions when markets fail; they possess unique advantages for governing certain kinds of economic activitie...
Resource-based View of Strategic Alliance Formation: Strategic and Social Effects in Entrepreneurial Firms
Why do firms form strategic alliances? The traditional theoretical answer has been transaction cost explanations. Yet, these explanations which center on transaction characteris...
What Firms Do? Coordination, Identity, and Learning
Firms are organizations that represent social knowledge of coordination and learning. But why should their boundaries demarcate quantitative shifts in the knowledge and capabili...
The Relational View: Cooperative Strategy and Sources of Interorganizational Competitive Advantage
In this article we offer a view that suggests that a firm's critical resources may span firm boundaries and may be embedded in interfirm resources and routines. We argue that an...
Joint ventures: Theoretical and empirical perspectives
Abstract This paper compares the perspectives of transaction costs and strategic behavior in explaining the motivation to joint venture. In addition, a theory of joint ventures ...
Publication Info
- Year
- 1996
- Type
- article
- Volume
- 21
- Issue
- 1
- Pages
- 13-47
- Citations
- 1946
- Access
- Closed
External Links
Social Impact
Altmetric
PlumX Metrics
Social media, news, blog, policy document mentions
Citation Metrics
1946
OpenAlex
Cite This
Sumantra Ghoshal,
Peter Moran
(1996).
Bad for Practice: A Critique of the Transaction Cost Theory.
Academy of Management Review
, 21
(1)
, 13-47.
https://doi.org/10.5465/amr.1996.9602161563
Identifiers
- DOI
- 10.5465/amr.1996.9602161563