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Identify the key characteristics of Transaction Cost Economics - Essay Example

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Name Instructor Task Date Identify The Key Characteristics Of Transaction Cost Economics. Analyze The Vertical Boundaries Of A Company By Describing The Critical Role Played By Coordination In A Vertical Chain. 1. Theory The concept of transactions cost economics (TCE) emphasizes that the most basic unit that is used in economic activities is the transaction…
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Identify the key characteristics of Transaction Cost Economics
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Identify the key characteristics of Transaction Cost Economics

Download file to see previous pages... The transaction costs can be further grouped into coordination along with motivation costs. The motivation costs are said to be comprising of opportunism along with the agency costs. The costs involved in coordination include the costs of searching, coordination of inputs along with the costs of measurement. In the real world, the transaction costs extension across multiple monetary exchanges can be achieved. To achieve these exchanges, some forms of governance frameworks are needed since they will be vital in determining the integrity’s of various transactions (McNutt, 2005). This can be accomplished adequately by using the formal along with informal frameworks to ensure that transactions are carried out in monetary manners. The notion of transaction cost economics stipulates that the other alternative forms of structures that can be utilized for organizing the economic activities are markets along with hierarchies. The concept of TCE additionally suggests that companies require aligning the governance frameworks with their transactional traits. The concept of TCE disagrees with the issue of people making decisions concerning the usage of government frameworks that will maximize the costs associated with transactions. The criterion that is most basically used in organizing the transaction costs involves economizing the total costs involved in their expenses and transactions. Markets whose total costs are high can appropriately use governance frameworks such as hierarchies (Basenko, Dravone, Shanley & Schaefer, 2009). The distinct traits of transactions have been argued to be the specifying of assets, uncertainty and the frequency of the transactions occurring. The trait known as asset specificity means the degree to which investments made on transactions are special to a particular transaction. In case a transaction flops, then the investments will be deemed as below value when utilized in another way. A circumstance of this nature can easily lead to the establishment of dependencies between the sellers along with buyers of a particular product (McNutt, 2005). This is because the buyers are tied up to the seller and cannot purchase from other sellers in the market. A partner in a transaction who only invests through specialized possessions will be more vulnerable to encounter opportunism. They will be required to carry out specialized efforts aimed at protecting their investments through the implementation, monitoring and enforcement of contractual controls (Basenko, Dravone, Shanley & Schaefer, 2009). An appropriate method of safeguarding against such problems is to apply the policies of vertical amalgamation/integration. This means that a company will have to indulge in the production of goods and services rather than purchase the already manufactured goods in the market. High levels of asset specificity imply that a company has to indulge in internally organizing their production rather than indulge in governing their markets (Basenko, Dravone, Shanley & Schaefer, 2009). The other trait of a transaction that is known as uncertainty mainly implies that the company will or may face situations which are currently unknown. These conditions could result from different sources such as their environment and behaviors. Uncertainty that comes from the environment refers to the difficulties encountered in ...Download file to see next pagesRead More
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