Overview

Transaction Cost Analysis suggests that firms face two kinds of costs when deciding whether to make or buy something:

• Production Costs - cost of the primary processes necessary to create goods or services
   
• Coordination Cost - the cost of governance or administration, the cost of coordinating people or machines.

The firm will decide whether to outsource or not based on the smallest total of the two costs.

PowerPoint Slides for This Theory - AMA Members Only.

Make suggestions for this overview by sending email to arc@ama.org.

Key Citations

Williamson, Oliver E. (1991), "Comparative Economic Organization: The Analysis of Discrete Structural Alternatives," Administrative Science Quarterly, 36 (2), 269-296.

Williamson, Oliver E. (1994), "Transaction Cost Economics and Organization Theory," in The Handbook of Economic Sociology, Neil J. Smelser and Richard Swedberg, Eds. Princeton, NJ: Princeton University Press.

Rindfleisch, Aric and Jan B. Heide (1997), "Transaction Cost Analysis: Past, Present, and Future Applications," Journal of Marketing, 61 (4), 30-5

Suggest additional key citations by sending email to arc@ama.org.

Application Areas

b2b

Other Literature

Bowen, David E. and Gareth R. Jones (1986), "A Transaction-Cost Analysis of Service Organization-Customer Exchange," Academy of Management Review, 11 (2), 428-441.

Dahlstrom, Robert and Arne Nygaard (1999), "An Empirical Investigation of Ex Post Transaction Costs in Franchised Distribution Channels," Journal of Marketing Research, 36(2), 160-170.

Malone, Thomas W., Joanne Yates, and Robert I. Benjamin (1987), "Electronic Markets and Electronic Hierarchies," Communications of the ACM, 30 (6), 484-497.

Suggest other literature by sending email to arc@ama.org.