This paper shows that market frictions are fundamental building blocks for an organizational
economics approach to strategic management. Various organizational economic approaches
(transaction costs, property rights, real options, and resource-based) have distinctive focal
problems and emphasize different combinations of market frictions. A wider recognition of the
role of market frictions is useful for three main objectives. First, it helps identify an evolving
market-frictions paradigm in strategic management. Second, it shows how two primary questions
in strategy of why firms exist and why some firms outperform others and the three primary
strategic goals of cost minimization, value creation, and value capture can be better joined and
evaluated. Third, different combinations of market frictions can generate new research questions
and advance theory development in the strategic management field. Copyright 2013 John
Wiley & Sons, Ltd.