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    Nandakumar Ananthasayanan
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    Cutting transaction costs is beneficial as it allows for more mutually advantageous exchanges between parties. Transaction costs include the costs associated with searching for trading partners, negotiating prices, and enforcing agreements. Lowering these costs can enable trades that were previously impossible. For example, companies like Sears, Longo Toyota, and Eskom have lowered transaction costs through strategies like employing multilingual salespeople, standardizing products, and using internet technologies to facilitate exchange. This increases the potential benefits available to all parties in a trade.

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    Transactions

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    Cutting transaction costs is beneficial as it allows for more mutually advantageous exchanges between parties. Transaction costs include the costs associated with searching for trading partners, negotiating prices, and enforcing agreements. Lowering these costs can enable trades that were previously impossible. For example, companies like Sears, Longo Toyota, and Eskom have lowered transaction costs through strategies like employing multilingual salespeople, standardizing products, and using internet technologies to facilitate exchange. This increases the potential benefits available to all parties in a trade.

    Copyright:

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    20 views20 pages

    Transactions and Institutions

    Uploaded by

    Nandakumar Ananthasayanan
    Cutting transaction costs is beneficial as it allows for more mutually advantageous exchanges between parties. Transaction costs include the costs associated with searching for trading partners, negotiating prices, and enforcing agreements. Lowering these costs can enable trades that were previously impossible. For example, companies like Sears, Longo Toyota, and Eskom have lowered transaction costs through strategies like employing multilingual salespeople, standardizing products, and using internet technologies to facilitate exchange. This increases the potential benefits available to all parties in a trade.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 20

    1

    Transactions and Institutions

    The Benefits of Exchange

    What Matters?
    To make a mutually beneficial trade, both parties must settle on a price.

    Economists are not concerned about the exact outcome. Buying a good with a non-negotiable price tag still benefits both if .

    Transaction Costs

    Longo Toyota
    For the past 20 years, Longo Toyota has been largest car dealer in US.

    Longo lowers transaction multilingual salespeople.

    costs

    by hiring

    A foreign firm purchasing a large US firm will probably hire its own interpreter.

    Making Transactions Materialize


    Cutting transaction costs increases the benefits available to the parties.

    It might enable them to make exchanges that were earlier impossible. Internet based trades.

    Sears
    Richard Sears (1863-1912): Founder of Sears, Roebuck and Co.

    Sears was the Worlds biggest retailer until WalMart took over after almost 100 years. Sears lowered a hosts of transaction costs.

    Eskom
    Like Sears, Eskom uses the technology to cut transaction costs.

    Interior wiring; Smaller quantities and limited ability to pay; Theft of cards; Theft of Power. www.eskom.co.za

    10

    The Box
    The standardized shipping container. It reduced the transaction costs. People around the world gained potential trading partners.
    Marc Levinson. The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. Princeton University Press, 2006

    11

    Choosing What to Produce


    How do people choose what to produce? Exactly who produces which goods is important as their competencies differ. Some possible assignments of production leave the society with more of all goods than other assignments.

    12

    Production Sets and Marginal Costs

    13

    Efficiency by Command

    14

    Efficiency by Trade

    15

    Nations and Persons


    English economist David Ricardo explained the benefits of specialization and trade using relative marginal costs. Comparative Advantage

    Absolute Advantage

    16

    Ireland: Potatoes vs. Software

    17

    What are Resources?


    Oil became a resource when people invented ways to create value with it.

    Low cost of telecommunication has turned Bangalore into a resource.

    "The Rise of India", Business Week, Dec 08, 2003.

    18

    Economic Institutions
    Economic institutions define the environment in which we trade.

    Contracts
    Market Protocols

    19

    The Governance of Transactions


    Transactions are fundamental units. Transactions take place under governance arrangements that describe the opportunities available to the parties and the constraints under which they operate.

    20

    Three Forms of Governance


    Markets

    Contracts
    Hierarchies

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