Small forces and large firms: Foundations of the RBV

Authors

  • Birger Wernerfelt

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    1. J. C. Penney Professor of Management, MIT Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts, U.S.A
    • Correspondence to: Birger Wernerfelt, Sloan School of Management, Massachusetts Institute of Technology, E62-532, 50 Memorial Dr., Cambridge, MA 02142, U.S.A. E-mail: bwerner@mit.edu

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  • This paper was originally prepared as a basis for a lecture when I received an honorary doctorate at the Copenhagen Business School. I am grateful to Nicolai Foss for suggesting that I pursue independent publication to reinvigorate foundational research in strategic management. An anonymous referee greatly aided the exposition.

Abstract

The article presents a synthesis of several papers I have written, mostly in the economics literature, since the publication of ‘A resource-based view of the firm’ (Wernerfelt, 1984). The starting point is a very small force: the reduction in bargaining costs when several bargains are pooled into one. I show how one can construct a theory of the firm based on this force and defend the theory by arguing that it makes predictions consistent with several stylized facts. In addition, the theory suggests that firms should decide on their strategy and scope based on excess capacity of productive resources—exactly like the RBV.

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