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The example about banana is plainly misleading. that is totaly worng The costs to reach a bananas' store are transportation costs and can be considered part of the price. To be sure, transaction costs are those more specifically related to contracting and arise either because of human nature (characterized by bounded rationality and opportunism) or to the nature of a certain transaction itself (i.e. frequency, asset specificity etc.). The difficulty to foresee, when an agreement is designed, all the future contingencies that may arise later on, allows those costs to show up. In other words, complete constracting is difficult and costly (it also assumes that there's an effective legal system) and therefore, economic agents tend to design institutions other than the market (vertical integration,private ordering, arbitrating bodies, rating companies etc.) in order to economize on transaction costs. The case of banana is too simple and basically transactions free (unless you usually travel to Congo to harvest them!). I think an example related to the purchase of a machinery by a firm or of a flat by an individual would be more appropriate. cheers.
- In the case of the banana, transaction cost would be the time and efforts to find out wich is the closest shop to sell bananas. The difficulty with such a cost is that it is not bounded or even known before we start to search. Such a cost goes beyond the fixed fees paid to a Real-Estate agent, for instance. Should there be any link towards radical uncertainty to detail this case ?
The existence of transaction cost=There Ain't No Such Thing As A Free Lunch? -Wshun 06:41, 22 Nov 2003 (UTC)
- Not exactly. They're not the same concept. TANSTAAFL means either that nothing is free or that even something that appears free has a hidden cost. Transaction costs are usually additional costs to something that already has to be paid for, and the additional costs are usually not hidden. —Lowellian (talk) 00:03, May 29, 2005 (UTC)
Coase is responsible for transaction costs
Just because you typed "transaction costs" into a search engine and it didn't show up in Coase's work until the 1970's does not mean is was not responsible. Take a peak at The Nature of the Firm (1937), where Coase states "The main reason why it is profitable to establish a firm would seem to be that there is a cost of using the price mechanism. The most obvious cost of "organizing" production through the price mechanism is that of discovering what the relevant prices are.18 This cost may be reduced but it will not be eliminated by the emergence of specialists who will sell this information. The costs of negotiating and concluding a separate contract for each exchange transaction which takes place on a market must also be taken into account.19" See also his discussion in footnote 31 of that paper.
This is the first appearance of the transaction cost theory, here labelled "the cost of using the price mechanism". While Coase never coined the term "transaction costs" (nor the term "the Coase Theorem", for that matter), he certainly came up with the concept of transaction costs. This was written in 1937, prior to his immigration to the USA and his seminal article on the Federal Communications Commission (1959), and his important paper titled "The Problem of Social Cost" (1960).
Give the man credit where credit is due.
FLOSS information seems inappropriate
No one likes FLOSS more than I do (well, maybe Richard Stallmann) but I don't think the section on information technology and transaction costs is appropriate here. FLOSS is one method by which an IT department could reduce its transaction costs, but there are many ways of doing that and singling one of these many ways out for special attention feels like advocacy to me. For instance, American IT work is often outsourced to India and other nations in order to reduce their costs, but that doesn't mean that we have to talk about outsourcing on this page.
The information about FLOSS would be much more appropriate on a page specifically discussing FLOSS, where anything that pertains to FLOSS is appropriate. Then we can put a link on this page to the FLOSS page, if desired.
- There are two sections regarding the relation of IT and Transaction cost. One is general, one is about FLOSS. Is your remark referring to both of them, or only the FLOSS part? --Kai a simon 10:16, 19 December 2006 (UTC)
transaction costs = institutional costs
I'm not an expert, but it seems to me that Steven N. S. Cheung's view that transaction costs are "any costs that arise due to the existence of institutions" is exactly opposite to Douglas North opinion, for the latter states that "when it is costly to transact, institutions matter". I understand from this last statement that North believes that transaction costs lead to the creation of institutions, while Cheung asserts that institutions create transaction costs. If I'm not mistaken and they do disagree so deeply, I think it would be interesting to note this in the article.126.96.36.199 14:14, 5 September 2007 (UTC)
- I'm not an expert either, but my view is that it is not institutions that create transaction costs. Transaction costs are everywhere just because communicating with everyone on earth at zero cost is simply not possible. The only reason eBay exists and makes money is that they reduce transaction costs; Occam's razor strips the institutions instantly. Joepnl (talk) 01:53, 30 January 2010 (UTC)
- No expertise with me either, but would love some expert to additionally put this article in the context of cryptocurrency. Cryptocurrency has been touted as an efficient means of currency exchange, but clearly no transaction is "free" or nobody would be a broker. I struggle to understand how cryptocurrency has value beyond (possibly) its means for performing transactions. 2600:6C48:7006:200:D84D:5A80:173:901D (talk) 02:43, 7 February 2018 (UTC)
Better example needed
The example is about complicated situations with monopolies etc. IMHO, examples are nice but they should not go into more or less unrelated details. I would suggest 2 examples, a very easy one and one bigger summarizing The Nature of the Firm. The first would be: why would anyone buy a ring tone at X cost when they can get it for free on Internet? Answer: just paying a few bucks for the ring tone is way easier than finding out who will offer exactly the same ring tone for free. The second would be: Why does Microsoft make money? It should be cheaper for all users to come together, decide on which programmers to hire and what features a word processor like Microsoft Word needs, decide how much everyone should pay depending of the number of features they really intend to use and just split the costs. The transaction costs implied by organizing this huge meeting, or even deciding who's lying about which features they would need are simply to huge. Companies exist because they decrease transaction costs. Joepnl (talk) 02:15, 30 January 2010 (UTC)
- Oppose: summary/main format seems to work here, there being a brief summary on this page for the subcategory Search cost which is distinctly notable and also relevant to Search theory. Klbrain (talk) 17:11, 19 July 2018 (UTC)
Inheritance and gifts- do they have transactions costs?
Do inheritance and gifts have transaction costs? Since they aren't taking place in a market setting, they seem to disqualify from out the gate. But they do have costs of measurement of value, enforcement of property, and search for recipients, much of the same costs, really.