Integrating Real Option and Dynamic Capability Theories of Firm Boundaries: The Logic of Early Acquisition in the ICT Industry

Firms often acquire other firms to source technology but it is unclear why they might assume such risk by buying before a product standard is established in their industry. We draw upon real options and dynamic capability theories of firm organization to develop an integrated framework that explains why firms might acquire early and which firms are more likely to do so. We develop propositions regarding certain firm attributes as predictors of acquisition timing relative to passage of a technology standard. We argue that from a real options perspective, the primary reason firms acquire early is related to the firm’s knowledge of the technology. However, attributes such as political influence in the standardization process, prior experience making acquisitions, and how the firm resolves uncertainty about the technical expertise of potential acquisition targets are capabilities that also enter the acquisition timing decision. We provide a model based on those propositions and address how it can be empirically tested.