MBA 101 Corporate Governance, Transaction Cost Economics Theory

what is the outcome of enforcing contracts and property rights in a market system? This is a topic that many people are looking for. is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, would like to introduce to you MBA 101 Corporate Governance, Transaction Cost Economics Theory. Following along are instructions in the video below:

“And welcome to another canyon channel feature this video is a part of corporate government government section. Please feel free to watch other sections of mba 101. Segments in this we re going to be looking at a concept called the transaction cost economics. The theory of transaction.

Cost. Economics. Also called a social cost theory is a contractual concept. Developed by british economist.

Ronald coase in 1937 and refined by american economist. Oliver williamson. In 1975..


The theory addresses the importance of companies or firms in a market economy. It proposes that hierarchal organization like firms may distribute resources more efficiently than it imperfect are limited bargaining system like a market to carry out a market transaction. It is necessary to discover who it is that one wishes to deal with to negotiate transaction leading up to a bargain to drop the contract to undertake the inspection needed to make sure that the terms of the contract are being observed and so on more succinctly transaction costs are number one search and information cost. Number two bargaining and decision cost number three policing and enforcement cost.

This is another topic that s not explained well in most academic books or videos on the internet. I had to really dig deep into the original research. Article by ronald coase and then gain an understanding. But once understood the topic and the results is quite interesting and useful i promise stay along with me.

And you too will benefit from this concept. Ronald coase. Gives the origin of the nature of the firm s as a course in the organization of the business unit..


Which he taught in 1932. He noted that there are inconveniences of market transaction. But if transactions are not governed by the price system there has to be an organization the object of a business organization is to reproduce the conditions of a competitive market for the factors of production within the firm at a lower cost and the actual market. But if an organization exists to reduce cost then why is there any market transaction at all close gave.

Two reasons. Number the cost of organizing additional transaction. Rise with scale and are equated with the cost of additional market transaction number two the organization of bigger firms may not reproduce the effect of market condition too much academic gibberish eh all right let me explain this using an example and then you too will have a eureka moment. Remember my previous video where i talk about my business.

I happy novelties the products that we sold mainly were light appeasers hats. Which were also sold at a store called party city in canada initially. I happy novelties with a small company basically sole proprietors..


We did not have expenses. Such as search and information caused by agents bargaining and sourcing cost. And did not have any corporate lawyers review. Our paperwork.

My friends and i basically visited alibaba website trade secret revealed here. Whereas party city had all those costs and their products needed to be factored in those cost making their product expensive. This is the main basis of transaction cost economics. Now further on what s the same products started appearing and public started noticing.

It walmart decided to try selling them now due to the sheer size of walmart purchase power. They use this as bargaining costs with supplier to drive the price down. We no longer could compete with walmart and decided to move on into another product..


I hope this made sense please feel free to leave me a comment. If you still have issues understanding this concept and i will try my best to explain this further any constructive criticism is also welcome as always thank you for investing your time in watching this video. I hope i was able to add some value to your learning. See you on another video.

This is ken indian channel signing off peace. ” ..

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