Essay on Characteristics of Transaction Cost Economics

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In the current competitive business situation, the budget of each investment is likely to be tight. From the beginning of the investment, the cost management might conduct for the best efficiency. Nowadays, firms work with not only domestic industries but also international suppliers. The channel of business opportunities has been developed widely. Global business interaction seems to bring about the relationship between the firm and supplier how to make a profit effectively. In addition, it might be possible to say that this circumstance leads to enhance the domestic industrial relationship too.

It cannot deny that the relationship with other organizations might be significant factor to manage the businesses in current competitive market. In the vertical chain of business process, the firm has to consider what is the efficient way to acquire the profit, which is created by make or buy decision in the vertical boundaries. This paper will be examined following three parts. Firstly, the back grand of the theory will be reviewed briefly. Secondly, the characteristics of the transaction cost economics (TCE) will be mentioned how to work in the vertical boundaries, including some sample cases. Finally, the critical role of TCE and key concept for the vertical chain co-ordination will be revealed.

First of all, the theory of transaction cost was stated by Coase. He issued his literature, The Nature of the Firm in the year 1937. Knight (Coase in Williamson and Winter, 1993) said that the determinants of the firm size are impossible to treat in the transaction. Because the size of the firms are made by market transaction, and the transactions are organized depend on several entrepreneurs. Dobb (Coase in Williamson and Winter, 1993)...

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Besanko, D., Dranove, D. & Shanley, M., Schaefer, S. 2010a. Economics of Strategy. 5th ed. New Jersey: John Wiley & Sons.

Besanko, D., Dranove, D. & Shanley, M., Schaefer, S. 2010b. Figure 5.4: Summarizing the frameworks: An issue tree [picture] John Wiley & Sons.

Coase, R., 1937. The Nature of the Firm. In: O. Williamson & S. Winter, ed. 1993. The Nature of the firm: Origins, Evolution, and Development. Oxford: Oxford University Press. Ch.2.

Khalil, E., n.d. After the special nature of the firm: Beyond the critics of orthodox neoclassical economics. In: Groenewegen, J., ed. 1996. Transaction cost economics and beyond. Ch.15.

McNutt, P., 2010a. Transaction Cost Economics (TCE) and the Modern Company [Online] Available: (Accessed Aug 2010)

McNutt, P., 2010b. Game Embedded Strategy. New York: McGraw-Hill

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