A large literature has developed in recent years that attempts to compare transaction cost and capabilities explanations of firms' vertical boundaries. Much of this literature has treated comparative capabilities (buyers' vs. potential suppliers') as determinants that are independent of...

While the literature on firm boundaries has been greatly influenced by transaction cost economics, strategy scholars often emphasize the importance of capabilities considerations in these decisions. This has led to a debate that, we suggest, has generated more heat than light. We argue that the...