The Objective, Nature and Essence of the Firm: An Alternative Integration

In a recent article in European Management Review, Pitelis and Teece (2009) argue that extant explanations of the nature and scope of firms, such as transaction costs, property rights, metering team production, and resource-based, can be integrated into a more general (capability-based) theory of the firm. Despite acknowledging their account offers new insights on the issue, I am critical of their claim that the (dynamic) capability-based perspective can integrate the existing theories, which they in fact have failed to substantiate for three reasons. Firstly, they downplay the role of opportunism and simply categorize it as a kind of market failure, which they suspect its explanatory power. Secondly, their account is entrepreneur-centric, ignoring the role of employees in the formation of the firm, a problem they see in the transaction cost theory but nevertheless fail to address themselves. Thirdly, their critique of the market-failure-based explanation is problematic. I briefly introduce my own relationship-based theory as an alternative integration of the existing theories.