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Transaction cost economics

💼 Business By CampusDown Wiki Editorial Team Last updated
Transaction cost economics explains why firms exist and what they make or buy, focusing on the costs of searching, bargaining, contracting and monitoring in markets.
Contents
  1. 1. Overview
  2. 2. Frequently asked questions
  3. 3. References

Overview

Coase (1937) argued firms exist because market transactions are costly. Williamson (1975, 1985) assumed bounded rationality and opportunism and stressed asset specificity, uncertainty and frequency; high values favour hierarchy over markets. It underpins make-or-buy, vertical integration and alliance decisions. Coase won the Nobel in 1991, Williamson in 2009.

Frequently asked questions

What are transaction costs?
Search, bargaining, contracting and enforcement costs.

References

  1. Coase, R. H. (1937). The nature of the firm. Economica, 4(16), 386–405.
  2. Williamson, O. E. (1975). Markets and Hierarchies. Free Press.
  3. Williamson, O. E. (1985). The Economic Institutions of Capitalism. Free Press.

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This article was last updated on October 24, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.