Transaction Cost Considerations Research Articles

Tarifverträge – nein danke!? Ausmaß und Einflussfaktoren der Tarifbindung west- und ostdeutscher Betriebe / Collective Agreements - No Thanks!? Extent and Determinants of Firms’ Bargaining Coverage in Western and Eastern Germany

Zusammenfassung Eine Auswertung repräsentativer Daten des IAB-Betriebspanels zeigt, dass im Jahr 2000 knapp die Hälfte der westdeutschen, aber nur gut ein Viertel der ostdeutschen Betriebe durch Flächenoder Firmentarifverträge gebunden waren, wobei die Flächentarifbindung in den letzten Jahren rückläufig war. Theoretische Erklärungen betonen u.a. die Bedeutung von Transaktionskostenaspekten und von verschiedenen mikro- und makroökonomischen Veränderungen. Ökonometrische Analysen zeigen, dass die Wahrscheinlichkeit einer Tarifbindung mit der Betriebsgröße und dem Anteil qualifizierter Mitarbeiter zunimmt. Filialbetriebe neigen häufiger, Einzelunternehmen und Personengesellschaften sowie jüngere Betriebe seltener zu tariflichen Regelungen. Größere Betriebe, Filialbetriebe und solche mit Betriebsrat ziehen sich auch seltener aus Flächentarifverträgen zurück.

The efficient public provision of commodities: Transaction cost, bounded rationality and other considerations

The efficient public provision of commodities: Transaction cost, bounded rationality and other considerations

Exclusive Dealing through Resellers in Auctions with Stochastic Bidder Participation

This paper demonstrates that a seller prefers to exclude final consumers from an auction and sell only to resellers when these resellers can gain access, at a cost, to a sufficiently bigger market than the seller himself. The intuition is that resellers recoup their expenses for marketing the item by reselling it to final consumers. If some consumers participate in the first auction and are outbid by the resellers, then their values for the item are relatively low. Outbidding part of their customer base is “bad news” for the resellers, and this depresses their bids when consumers compete with them. The socially optimal and revenue-maximizing choices of auction format may not coincide: Restricting participation of consumers may be socially optimal but privately suboptimal and vice-versa. The results suggest that (i) the exclusion of final consumers in some auctions may not be driven by transaction cost considerations, and (ii) sellers should not necessarily sell directly to consumers, even though new technologies allow them to do so at essentially zero cost, unless they can access a sufficiently large portion of the market.

Exclusive Dealing through Resellers in Auctions with Stochastic Bidder Participation

This paper demonstrates that a seller prefers to exclude final consumers from an auction and sell only to resellers when these resellers can gain access, at a cost, to a sufficiently bigger market than the seller himself. The intuition is that resellers recoup their expenses for marketing the item by reselling it to final consumers. If some consumers participate in the first auction and are outbid by the resellers, then their values for the item are relatively low. Outbidding part of their customer base is “bad news” for the resellers, and this depresses their bids when consumers compete with them. The socially optimal and revenue‐maximizing choices of auction format may not coincide: Restricting participation of consumers may be socially optimal but privately suboptimal and vice‐versa. The results suggest that (i) the exclusion of final consumers in some auctions may not be driven by transaction cost considerations, and (ii) sellers should not necessarily sell directly to consumers, even though new technologies allow them to do so at essentially zero cost, unless they can access a sufficiently large portion of the market.

An Additive On-Line Portfolio Selection Algorithm

An on-line portfolio management algorithm using additive update rule is presented with consideration of proportional transaction costs. After establishing a relationship between transaction costs and the distance of two portfolio vectors, we solve an optimization problem making a balance between high wealth growth rate and low transaction costs. It is shown that the presented portfolio strategy is universal relative to the set of all buy-and-hold portfolios in the sense that it achieves the same asymptotic exponential growth rate of wealth as the best buy-and-hold portfolio determined with hindsight. The simulation examples using the real data from the London Stock Exchange show the efficiency and the computational simplicity of the algorithm.

Farmland Prices in the Presence of Transaction Costs: A Cautionary Note

AbstractExplicit consideration of transaction costs is highly relevant for modeling farmland price behavior in a realistic manner. Unfortunately, there are numerous theoretical and empirical difficulties associated with doing so. From a research standpoint, such difficulties greatly increase the likelihood of mistakes in the theoretical derivations and/or in the design and application of empirical methods, thereby undermining the validity of the ensuing findings. This article highlights these issues by discussing the theoretical and empirical pitfalls of two seminal recent articles analyzing farmland prices in the presence of transaction costs.

Optimal Exclusive Dealing Through a Distribution Channel in Auctions with Stochastic Bidder Participation

This paper endogenizes exclusive dealing through a distribution channel in auction markets. In particular, it is demonstrated that a seller prefers to exclude final consumers and sell only to re-sellers when these resellers can gain access, at a cost, to a sufficiently bigger market than the seller himself. The intuition behind this result is that the re-sellers can recoup their expenses for marketing the item by re-selling it to the final consumers. If some of the consumers participate in the first auction and are outbid by the resellers, this is an indication that their values for the item are relatively low. Outbidding part of their customer base is 'bad news' for the resellers, and this depresses their bids when final consumers compete with them. The socially optimal and revenue maximizing choices of auction format may not coincide. It is possible that restricting participation of consumers is socially optimal but privately sub-optimal and vice-versa. The results of this paper suggest that (i) the exclusion of final consumers in some auctions may not be driven by transaction costs considerations, and (ii) sellers should not necessarily sell directly to consumers even though new technologies, such as electronic/ Internet trading, allow them to do so at essentially zero cost.

Japanese Joint Ventures in the UK: Does Product Classification Matter?

This paper investigates the factors that determine the choice of Japanese companies between part and full ownership of their UK subsidiaries. This choice may very well depend on the product classification of the firm. This study extends a previous paper which dealt only with aggregate manufacturing. Here the sample size has been increased and manufacturing split into consumption goods and investment goods industries. Also, the service sector has been included in the analysis. The result of the analysis suggest that the choice is governed by transaction costs considerations and that product classification does matter in the ownership strategy of Japanese MNEs in the UK.

Managing gray markets through tolerance of violations: a transaction cost perspective

Exclusive territory distribution arrangements are commonly observed in many markets. Once deployed, such arrangements are often subject to gray market activity, in the form of unauthorized sales which violate assigned restrictions. Interestingly, however, firms frequently choose to tolerate violations, rather than pursuing complete enforcement (i.e., by terminating violators) or abandoning exclusivity entirely. We draw from the literature on transaction cost economics to propose that tolerance of gray market activity is a function of a firm’s ability to detect violations, and of the existence of credible threats and commitments. We also draw on the traditional literature on exclusive territories to suggest that minimizing distributor free-riding on services, which influences the decision to use exclusive territories in the first place, continues to be a concern after deployment. We collect micro-level data and test our predictions through a survey of managers who were responsible for the distribution decisions in their respective companies. Our results suggest that tolerance of violations is influenced both by transaction cost and free-riding considerations. © 1998 John Wiley & Sons, Ltd.

Strategic Response to Institutional Influences on Information Systems Outsourcing

This paper underscores the importance of examining strategic response to institutional influences in light of hypercompetition. Focusing on the banking industry, which is hypercompetitive and highly institutionalized, affords a unique opportunity to understand how individual corporations in such an industry respond strategically to institutional pressures. We examine critical contingencies arising from hypercompetition that moderate institutional influences on information systems outsourcing in commercial banks. Using data from 226 banks and hierarchical moderated regression analyses, we show that the propensity of banks to conform to or resist institutional pressures depends on the nature of institutional pressures, perceived gain in production economies, financial capacity to resist institutional influences, and transaction cost considerations.

Collaborative Ventures and Value of Learning: Integrating the Transaction Cost and Strategic Option Perspectives on the Choice of Market Entry Modes

This paper employs a simple stochastic model to investigate how transaction cost and strategic option considerations interact to influence a firm's evaluation of collaborative venturing as a market entry mode. After demonstrating how uncertainty about the market and about the potential partner can add to the value of a collaborative venture, the paper explicates a condition under which the option to acquire or sell out generates a positive economic value for both of the partners. The interaction of transaction cost and strategic option considerations is then examined, and a number of testable hypotheses are proposed based on the theoretical analyses of the paper.

Signaling Quality with a Money-Back Guarantee: The Role of Transaction Costs

Direct marketing is witnessing explosive growth. As consumers increasingly purchase products from their homes, their ability to judge the quality of products they buy is significantly reduced. In this paper we study how money-back guarantees can signal product quality in such environments. We interpret product quality broadly to mean both the level of attributes promised as well as the firm's consistency in delivering on those promises. Key aspects of our formulation are the explicit consideration of transaction costs, and alternative signals of product quality. Transaction costs are the costs the seller or buyer faces when redeeming a money-back guarantee. We show that money-back guarantees signal quality by exploiting the higher probability of returns for a lower quality product, and the attendant higher transaction costs. However, if the seller's transaction costs are very large, then there are less costly ways to signal, namely charging a high price. We compare the signaling performance of (1) price, (2) price with uninformative advertising, and (3) price with a money-back guarantee. Whereas uninformative advertising does not work at all in our model, under certain conditions a money-back guarantee is necessary to signal, and under other conditions, a money-back guarantee is a useful supplement to price.

Ronald Coase on the Nature of Social Cost as a Key to the Problem of the Firm

Thirty years ago 'The Problem of Social Cost [I19601' was published. It transformed the field of Industrial Organization and greatly expanded its scope. We briefly survey the state of the field before 1960. and then show some of the ways by which Coase's paper changed economic thinking. Early Developments In one way or another, transaction costs have always played a role in economics: Economists have long been aware that in a specialized economy the transformation of factors of production into utility involves more than manufacturing and transportation. They have been aware that exchanges are subject to friction, that the of doing business is positive, and that buy-sell differentials exist. For a long time, transaction cost problems had not been a subject of analysis. In Walras' model, these costs are implicitly assumed to be zero; in other models these costs are implicitly assumed to be infinite. In Risk, Uncertainty and Profit (1921), Knight implicitly introduced significant transaction cost considerations to the analysis of the firm. His uncertainty - the driving force in his theory of the firm - is best understood as being like risk except that it is too costly to transact in the market; see Barzel (1987). The transaction cost basis of the distinction between risk and uncertainty is not explicit in Knight's analysis and the controversies surrounding Knight's uncertainty did not attempt an analysis of the cost of transacting, nor even of the costs that are specifically related to uncertainty.

Homesteading and Property Rights; Or, "How the West Was Really Won"

Homesteading and Property Rights; Or, "How the West Was Really Won"

Assessing Vertical Market Restrictions: Antitrust Ramifications of the Transaction Cost Approach

Whether troublesome antitrust issues are posed when vertical restraints are placed on distributors by manufacturers has long been disputed. Although economic analysis is needed to assess the ramifications of such restraints, this analysis comes in a variety of forms and does not speak with one voice to these issues. Defective economic reasoning predictably leads to results that are inimical to economic efficiency and sound public policy. Such was the case when franchise restrictions were held anticompetitive in United States v. Arnold, Schwinn & Co.' This Article develops the argument that failure to make express allowances for transaction cost considerations is responsible for mistaken public policy in this area. The transaction cost approach applies symmetrically both to an assessment of the efficiency gains, if any, arising from vertical restraints and to an evaluation of the strategic purposes and effects, if any, that accompany such restraints. After developing the justifications for, and occasional anticompetitive effects of, vertical market restrictions, I will suggest guidelines for federal antitrust policy. Part I outlines the general transaction cost approach and concludes that antitrust enforcement agencies and the courts should assume that vertical market restrictions are efficiency-enhancing unless certain structural conditions exist within the industry. Part II discusses strategic behavior and the structural characteristics of industries needed to support strategic outcomes. Vertical restraints pose troublesome antitrust issues only when these