Uncovering the hidden transaction costs of market power: a property rights approach to strategic positioning

A central construct in competitive strategy research is market power, the ability to raise price above marginal cost. Positioning research focuses on attempts to build, protect, and exercise market power. However, this approach contains hidden assumptions about transaction costs. Parties made worse off by the exercise of market power can negotiate, bargain, form coalitions, and otherwise contract around the focal firm’s attempts to appropriate monopoly profits — depending on transaction costs. We build on property-rights economics to explain how transaction costs affect positioning and offer propositions about successful positioning in an environment with transaction costs.