Are capability-based theories of firm boundaries really distinct from transaction cost theory?

A large literature has developed over the past 10 years or so that seeks to understand the determinants of firms' vertical boundaries. Much of this literature has treated comparative capabilities (buyers' vs. potential suppliers') as determinants that are independent of transaction costs, based on the idea that capabilities theories of the firm are distinct from the transaction cost theory of the firm. In this commentary, we argue that this approach is mistaken; that in fact, capabilities and transaction cost determinants interact with other dynamically, and that the two theories of the firm cannot be conceptually distinguished. Our argument carries important implications for theories of the firm, and for empirical research aimed at testing those theories.