A resource-based theory of sustainable rents.(Technical)

Joseph T. Mahoney (*)

Received 1 February 2001; received in revised form 20 August 2001; accepted 20 September 2001

Abstract

This paper summarizes and comments on Conner (1991) that contributes to the strategic management area by providing an historical comparison of resource-based theory and five schools of thought within industrial organization economics. Conner (1991) argues that the fundamental distinction between resource-based theory and transaction costs theory is that resource-based theory focuses on the deployment and combination of specific inputs while transaction costs theory focuses on the avoidance of opportunism. I offer three responses to this claim. First, Conner's distinction was not central to the resource-based literature at the time the article was published. Second, I raise concerns about building a resource-based theory of the firm that assumes away the problems of opportunistic behavior. Third, I offer an alternative view of the fundamental similarities and differences between resource-based theory and transaction costs theory. [C] 2001 Elsevier Science Inc. All rights reserved.

1. Introduction

Conner (1991) reaches for an overarching paradigm in strategy research and is a work of careful scholarship that is worthy of continued analysis. After summarizing some key arguments of Conner (1991) that contributed to strategic management by providing an historical comparison of resource-based theory (1) and five schools of thought within industrial organization economics, I focus on her discussion of the relationship between resource-based theory and transaction costs theory. In particular, Conner (1991) argues that the fundamental distinction between resource-based theory and transaction costs theory is that resource-based theory focuses on the deployment and combination of specific inputs while transaction costs theory focuses on the avoidance of opportunism. I offer three responses to this claim:

1. Conner's (1991) distinction was not central to the resource-based literature at the time the article was published.

2. Concerns are raised about building a resource-based theory of the firm that assumes away the problems of opportunistic behavior.

3. An alternative view is offered of the fundamental similarities and differences between resource-based theory and transaction costs theory.

2. Summary of key arguments in Conner (1991)

Conner notes that: "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" (1991, p. 121). (2) Conner (1991) makes clear that an historical review of strategy research suggests that a resourcebased perspective long has been central to strategic management (Barnard, 1938; Selznick, 1957; Chandler, 1962; Rumelt, 1974). Conner (1991) joins the ranks of other strategy researchers who acknowledge the historical centrality of resource-based theory, such as Rumelt (1984, p. 557-558):

In essence, the [strategy] concept is that a firm's competitive position is defined by a bundle of unique resources and relationships and that the task of general management is to adjust and renew these resources and relationships as time, competition, and change erode their value. This way of looking at the firm ... [is] useful in describing and summarizing the empirical studies of firm behavior that form the core of the business policy literature.

In addition to describing the resource-based perspective as long being central to strategic management, Conner (1991) documents well how resource-based theory is positioned relative to five schools of thought within industrial organization economics:

Neoclassical perfect competition (McNulty, 1968);

Bain-type industrial organization (Bain, 1954, 1968);

Schumpeterian competition (Schumpeter, 1950; Nelson & Winter, 1982);

Chicago School responses (Stigler, 1968; Demsetz, 1973); and

Transaction costs theory (Coase, 1937; Williamson, 1975).

Conner (1991) indicates that the distinctions between resource-based theory and neoclassical economics are that under resource-based theory critical resources may be immobile and the identification of resource combinations is not obvious, in contrast to the perfectly mobile factors of production and the uniformly understood production function of neoclassical theory. The distinctions between resource-based theory and Bain-type industrial organization are that the firm (not the industry) is the unit of analysis for understanding sources of above-normal returns, and the internal organization of the firm is regarded as a critical variable.

The key differences between resource-based theory and Schumpeterian competition (Schumpeter, 1934) are that the feasibility of …