Transaction Cost Economics Flashcards
1
Q
Vertical Integration
A
Incorporating an activity of the same industry chain within the firm’s own boundaries
Requires asset specificity and opportunism
2
Q
Make
A
More control
Managers coordinate in-house exchange
3
Q
Buy
A
Market coordinates an exchange through the price mechanism
4
Q
Problems with ownership
A
- Capital requirements
- Increased risk
- Taxes
- Difficult to adapt to changes
- Hard to sell assets
5
Q
Buy or make decision
A
Make - if the activity is strategically valuable and your firm is more competent than most suppliers
Buy - the activity is low value and you cannot produce better than most suppliers
