Abstract

The purpose of this article is to explain why economic analysis has until recently yielded few insights into strategic management issues, to examine the intellectual roots of several recent contributions from industrial organization economists, and to develop in an illustrative fashion several strategic management principles regarding enterprise structure. This last endeavor involves mining the emerging economic theory of internal organization for normative propositions of practical import to those concerned with organizational design and efficient boundary issues. The economic theory of the firm and of markets is to the point where, if correctly applied, it can have a constructive impact on the field of strategic management. As a robust theory of the firm with strong normative implications develops, and as the structural analysis of markets improves so as to focus more attention on the fine-grained aspects of structure and conduct, and as theorists and practitioners find ways of blending together the theories and various findings of research and best business practice, the possibility arises that economics can make an increasingly positive contribution to certain aspects of strategic management, especially questions relating to the design of business strategies.