Enactment treats executives as the masters of their domains. Buying airplanes from Boeing or Airbus is much more efficient than would be trying to backwardly integrate into the airplane manufacturing business.Īlthough resource-based theory stands as perhaps the most popular explanation of why some organizations prosper while others do not, several other theories are popular. No airline has ever chosen “make” when needing new airplanes. Choosing efficient options enhances profits.
Transaction cost economics centers on whether it is cheaper for a firm to make or to buy the products that it needs. In the late 2000s, a new idea of charging passengers to check their luggage was copied by one airline after another. After American Airlines became the first major airline to create a frequent flyer program in 1981, its competitors quickly developed their own frequent flyer programs. Institutional theory is interested in the extent to which firms copy each other’s strategies. Many industry experts claim that the demise of Braniff Airlines, and others was inevitable.
#Transaction cost economics theory series#
After the airline industry was deregulated in the late 1970s, a series of large airlines fell prey to bad environment conditions such as recession, overcapacity in the industry, and fuel shortages. In its early days, the federal government controlled airlines’ routes and prices. Although no airline has ever been able to do so, Microsoft and Apple are two firms that seemed to have enacted their environments.Įnvironmental determinism contends that external factors drive a firm’s fate. This puts a firm in control of its destiny. Enactment suggests that organizations can, in part, create their environment through outstanding strategies. Below we illustrate several other prominent theories using examples from the airline industry. Resource-based theory is currently perhaps the most popular way of explaining why some firms succeed and other fail, but it is far from the only explanation. Table 4.11 Other Theories about Firm Performance
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