Product Complementarities, Capabilities and Governance: A Dynamic Transaction Cost Perspective

The organization and governance of the transactions that comprise a bundling arrangement depend on the distribution of capabilities among firms and the amount of time during which the window of opportunity for earning rents is expected to remain open. Firms engaged in inter-firm collaboration must undertake ‘support’ transactions related to billing, marketing, customer support and product repair. These support transactions differ from the ‘core’ transactions that have traditionally been perceived as sufficient to provide a product bundle. Since support transactions create costs of their own, the market may turn out to be an expensive means of governing collaborative arrangements undertaken for bundling purposes. The telecommunications service sector provides an illustration.