The theory of the firm addresses the fundamental questions that we could ask about business organizations, including those regarding their role, their organizational boundaries, and their performance. It is not surprising that economists have made substantial contributions to our understanding of these issues, from neoclassical economics to the new industrial organization economics. However, it is more puzzling that the field of strategic management has not been able to absorb selectively the abundant literature on the economic theory of the firm and to adapt it to its own goals regarding strategic decision making. Simply put, economic theories like transaction costs economics were not designed to facilitate strategic analysis.

At this moment, strategy does not yet have a core theory of what firms do and their performance in the market, although the entire field somehow deals with an applied and instrumental perspective about the actions of firms and their implications for business performance. A large variety of approaches to the nature of the firm coexists within strategic management, currently dominated by the resource-based view of the firm. Unfortunately, the lack of a core foundation makes progress for the field more difficult through unnecessary controversies, such as market positioning versus resource analysis of competitive advantage.

This book is one step towards the goal of developing a reasonably comprehensive theory of the firm for strategic management.