A HISTORY COMPARISON OF RESOURCES- Kathleen R.

Conner – 1991
BASED THEORY AND FIVE SCHOOLS OF
THOUGHT WITHIN INDUSTRIAL
Student: Nguyen Thi Bao Tram
ORGANIZATION ECONOMICS: – DB11G217
DO WE HAVE A NEW THEORY OF THE FIRM?
INTRODUCTION
This article addresses the degree to which a resource-based view
represents a fundamentally different approach from theories used in
industrial organization economics.
The central thesis is that, put informal terms, the resource-based
approach is reaching for a theory of the firm. To determine its
distinctiveness in comparison to Industrial Organization, therefore, an
appropriate comparison is with other theories of the firm developed
within that tradition.
Five Theories of the Firm IQ Economics
Distinctiveness of Resources-Bases Theory
The constraints are of two types: External and
Internal
Resources-based Theory as a New Theory of the
Firm
Conclusion
 FIVE THEORIES OF THE
FIRM IO ECONOMICS
- Neoclassical Perfect Competition Theory: Firms as Combiners of Inputs: firm
are identical because perfect information together with a specific information
together with a specifiable production function assures that each firm has equal
access to product technology; perfect information plus resource mobility and
divisibility assures that each firm is able to obtain exactly the right inputs;
maximum profits because they are equally able to team the proper inputs.
- Bain-type IO: Firms as output-restrainers: through exercise of monopoly power
or by colluding with other firms. From a social welfare perspective above-normal
returns thus reflect nefarious firms behaviors that occurs at the expense of
consumers. The motivation for firm expansion in Bain-type Is to increase
monopolization or another firm from gaining monopoly control.
- Schumpeter’s Response: A focus on Dynamics, with Firms as Seekers of new
Ways of Competing: Schumpeter points out that investing in radical innovation
is inherently risky, given the financial commitments required and the “ever-
present threat” of competition; receive the most attention are the relationship
between industry concentration and innovation, and firm size and innovation.
- The Chicago response: A Renaissance of Price Theory, With Firms as Seekers
of Production and Distribution Efficiencies: understand the economics
rationale of legal strictures on business, and of business practice observed in
the real world; maximize joint profits; combined profits of the entire set of
firms in nan industry are maximized when they act together as a monopolist.
Coase/ Williamson Transaction Cost Economics: Firms as Avoiders
of the Costs of Market Exchange: “the distinguishing mark of the
firm is the supersession of the price mechanism”. Firms exits to
avoid the costs of conducting the same exchange between
autonomous contractors; applying marginal analysis “ a firm will
tend to expand until the cost of organizing an extra transaction by
means of exchange on the open market or the cost of organizing in
the other firm”
DISTINCTIVENESS OF
RESOURCES-BASES THEORY
Central Elements of Resource-based Theory: Firms as Seekers of
Costly-to-Copy Inputs for Production and Distribution: the critical
problem faced by the firm is how to maintain the distinctiveness of
its product, for identical products, its low cost position, while not
investing so much in obtain this differences as to destroy above-
normal returns.
THESE CONSTRAINTS ARE
OF TWO TYPES: EXTERNAL
AND INTERNAL
1. External Constraint on Inputs Able to Generate Rents: 3 sources
of external constraints that affect the ability of inputs include
conditions of demand relevant to the product, public policy and
competitor action.
2. Internal Constraints on Inputs Able Generate Rent: leaving
aside for the moments the issue of idiosyncrasy, the relationship
of such linkages to above-normal returns.
 RESOURCES-BASED THEORY
AS A NEW THEORY OF THE
FIRM
- A collection of market contracts and other firms.
- Consider the existence of a firm in comparison to other firms
- Consider an existing firms that undertakes a research project to create a
products embodying advances in technology to be developed in the course of
the project. The project maybe undertake or strictly or partly by an in-house
team, or wholly by an outside team on a contract basis.
- If the research project has the potential to be closely linked with the firm’s
existing operations, option will be superior to because an in-house team is
likely to produce technological knowledge, skill or routines that fit better with
the firm’s current activities
CONCLUSION
THE CONTRIBUTIONS THAT RESOURCE-BASED THEORY AND
EMPIRICS ULTIMATE WILL MAKE DEPEND TO GREAT
MEASURE ON HOW APPROACH IS OPERATIONALIZED .

-1st: Source-based theory holds that performance differentials

between firms depends to significant measure on possession of
unique inputs and capabilities.
- 2nd: the level at which inputs resources are defined: resources
such as reputation and dealer loyalty which are created from
investment in more elementary resources, such as team capabilities
in quality control; at some level, everything in the firm becomes a
resource and hence resources lose explanatory power.
- 3rd: acceptable empirical proxies for firms resources: outcomes of
application of firm resources be used as proxies for the underlying
resources (R&D capabilities); measures of underlying resources
pose a heavy date burden on empirics.
- 4th: the relationship between the resource-based perspective and
the “new IS’s” game theoretic approach: the firm’s own asset base,
the asset bases of competitors, and constraints emanating from the
broader industry and public policy environment.