Coordination Costs and Firm Boundaries: A Tale of Two Supply Chains in the Apparel Industry

The transaction costs literature emphasizes the role of firm boundaries in addressing incentives of parties to engage in rent seeking behavior. The focus on the potential for “hold-up ” in the presence of transaction-specific investments implicitly assumes that production and coordination problems have been solved a priori. Drawing from the capabilities literature, this paper looks at the role organization plays in reducing these costs. It argues that many of the hold-up problems associated with “temporal specificity” can be more accurately characterized as issues of suboptimal coordination. A case study examining alternative organizational arrangements in fast fashion is presented in illustrating the importance of firm boundaries in addressing coordination problems