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This 8 page paper looks at the concept of transaction cost economics, defining the characteristics of transaction costs, considering the boundaries and assessing the way that this may be used to manage costs and aid with management decisions. The bibliography cites 9 sources.
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8 pages (~225 words per page)
File: TS14_TETCEvert.doc
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the way they are incurred and the nature of those costs. A great deal of literature focuses on operational costs and how they can be managed and controlled, but a
lesser understood and targeted costs are the transaction costs. A key element in understanding transaction costs and how they may be managed it is necessary to look at the theory
itself and have an understanding of the vertical boundaries within the firm and the vertical chain. The basic concept transaction cost economics is that wherever an economic transaction takes place
there will be associated costs. This can be seen as the cost of market participation. Jacobides and Winter (2005) argue that transaction costs are just as important to a firm
as the costs of production, and that transaction costs are significant in making decisions regarding the vertical supply chain, such as decisionswhether to undertake in house production or pursue an
outsourcing strategy. Barney (1991) argues it is used in the way resources are allocated. In order to examine this theory, and consider the way transaction costs can be seen in
terms of the vertical boundaries of the firm it is first necessary to look at the concept itself and the way that boundaries may impact on its use. Transaction
costs can be defined costs which are incurred as a result of managing production, these may be costs that are internal or external, but their main characteristics is that they
are not production costs. The term originates with Coase, seen first in his 1937 "The Nature of the Firm". In this paper he defined transaction costs as " the cost
of using the price mechanism" (Coase, 1988, p38). However, this is a rather vague declaration, many critics note that with this Coase
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