win|比分

                                  
                                  

                                  Businessmate Site Logo

                                  Home - About - Advertise

                                  Date: 2020-06-08
                                  Search Articles by topic

                                  Mangement and Leadership

                                  Production Management


                                  Business Strategy

                                  Accounting

                                  Marketing

                                  Human Resource Management


                                  Organizational Theory & Design


                                  National and Organizational Culture

                                  Important Business Terms

                                   

                                  Article Search
                                  Search Title & Content:
                                  Search Author:

                                  Custom Search

                                   

                                   

                                   

                                   

                                   

                                  Transaction Cost Theory

                                   
                                  Recommend this article to your friends!
                                   

                                  Transaction cost theory tries to explain why companies exist, and why companies expand or source out activities to the external environment. The transaction cost theory supposes that companies try to minimize the costs of exchanging resources with the environment, and that companies try to minimize the bureaucratic costs of exchanges within the company. Companies are therefore weighing the costs of exchanging resources with the environment, against the bureaucratic costs of performing activities in-house.

                                  The theory sees institutions and market as different possible forms of organizing and coordinating economic transactions. When external transaction costs are higher than the company's internal bureaucratic costs, the company will grow, because the company is able to perform its activities more cheaply, than if the activities were performed in the market. However, if the bureaucratic costs for coordinating the activity are higher than the external transaction costs, the company will be downsized.

                                  According to Ronald Coase (1937), every company will expand as long as the company's activities can be performed cheaper within the company, than by e.g. outsourcing the activities to external providers in the market.

                                  According to Williamson (1981), a transaction cost occurs "when a good or a service is transferred across a technologically separable interface". Therefore, transaction costs arise every time a product or service is being transferred from one stage to another, where new sets of technological capabilities are needed to make the product or service.

                                  The transaction costs related to the exchange of resources with the external environment could be reflected by the following factors. The list is not exhaustive.

                                  • Environmental Uncertainty
                                  • Opportunism
                                  • Risks
                                  • Bounded Rationality
                                  • Core company assets

                                  The factors above will all potentially increase the external transaction costs, where it may become rather expensive for a company to control these factors. Therefore, it may very well be more economic to maintain the activity in-house, so that the company will not use resources on e.g. contracts with suppliers, meetings, supervision etc.

                                  Therefore, if companies see the environmental uncertainty as high, they might choose to not outsource or exchange resources with the environment.

                                  Example:
                                  If a company is thinking about outsourcing its production of a given product, it may assess the costs related to such a transaction with the environment. If the company sees it as difficult to formulate a contract that controls the uncertainties related to the exchange, the company may regard it as to costly to outsource the production. This is because the transaction costs of monitoring the exchange are perceived to be higher, than the bureaucratic costs of performing the activity in-house.

                                  Managers must therefore weigh the internal transaction costs against the external transaction costs, before the company decides whether or not to keep some activity in-house, or to e.g. outsource the activity to the environment.

                                   
                                  ?
                                   
                                   
                                   
                                  Date Created: 2010-03-17
                                  Posted by: Admin
                                   
                                   
                                  Transaction Cost Theory
                                   

                                  Related resources:

                                  What is Contingency Theory?
                                  James Galbraith: Information Processing View
                                  Max WeberĄ¯s theory of Bureaucracy
                                  Max WeberĄ¯s three types of authority
                                  Mechanistic vs. Organic Organizational Structure (Contingency Theory)
                                  Reference(s)
                                   
                                  The Nature of the Firm
                                  Coase, R. H.; (1937); Economica
                                  Markets and Hierarchies: Analysis and Antitrust Implications
                                  Williamson, Oliver E.; (1975); New York: Free Press
                                  Keywords:

                                  Online MBA, Online MBA Courses, Transaction Cost Theory, Outsorcing, business development

                                   






                                  Advertise on Businessmate.org


                                   
                                   

                                  Copyright © BusinessMate 2009-2019

                                   
                                  Home - About - Terms of Use - Contact - Sitemap - Privacy Policy

                                                                  
                                                                  

                                                                  city

                                                                  fashion

                                                                  car

                                                                  search for

                                                                  Mobile phone

                                                                  car

                                                                  city

                                                                  news

                                                                  Second-hand housing