A growing body of literature suggests that Transaction Costs Economics (TCE) and Resource Based Theory (RBT) of the firm are distinct, yet complementary, in their ability to explain firm boundary decisions. We suggest that an increased integration of their theoretical logic warrants consideration. Consequently, our study develops a theoretical argument and resulting hypotheses that focus on the interaction between TCE and RBT. We thereafter test our hypotheses with firm-level panel data from 155 IOU electric utility firms over nine years. Controlling for traditional TCE variables such as environmental uncertainty, market uncertainty, and asset specificity, we find that a significant amount of variance in vertical disintegration is explained by firm-level characteristics; specifically, dynamic capabilities related to managing firm-specific uncertainties in supply and demand transactions, and those harvested from firm-specific IT investments. Our study is unique in theorizing and empirically corroborating mechanisms where TCE and RBT interact.

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