Transaction Cost and Activity of Economic Agents

Abstract

The goal of the present paper is to clarify the role of transaction cost for existence of an economic agent. It is demonstrated that the opposition of transaction cost and transformation cost is not rigid and there are costs that contain both transaction and transformation component. In addition the amount of transaction cost depends on parameters of company’s activity. This is why it is hardly possible to find the precise minimum of transaction cost and the model of organization of transactions within firm will be flexible. The firm’s structure contains special transaction divisions (centers of transaction cost) that are necessary for existence of the firm as a mechanism of organization of transactions (opposed to market). The status of these divisions depends on firm’s size. Transaction divisions can also exist outside the firm. They will minimize transaction costs of other economic agents on the basis of external effect of scale. External transaction divisions can exist both as collective structures (coordinating centers of strategic alliances) as well as independent ones (franchisors). A comparative analysis of transaction divisions and centers of cost was done. It was demonstrated that these elements of the firm have different economic and organizational structure. The notion of cost of external profitability was introduced. This notion can be used to analyze reasons for merger of companies or for their existence as independent structures. It is demonstrated that one of the functions of the firm is to use resources that cannot be used within independent production units.

Keywords

• transaction cost
• transformation cost
• hybrids
• firm
• market
• scale economy