Thinking Economically About Strategy

In Chapter One, David Teece examines "orthodox" economics and finds it not very useful for answering questions about organizational strategy. In this chapter (and in Camerer, 1984), I examine "orthodox" strategy research and find it lacking in economic rigor. Teece and I end up endorsing remarkably similar research agendas, though we take opposite paths to our conclusions. First, the philosophical bases and shortcomings of traditional strategy research are examined. Then, some foundations of a more rigorous approach to strategy research are proposed, by separating the useful from the absurd in economic theory. Finally, a critique of Teece's paper is offered (halfheartedly), and some specific research directions are proposed that are mostly complementary to those that Teece advocates.