Transaction Costs

Abstract

Transaction costs are costs involved in any transaction for the exchange of goods, services, or assets. They have two main components, transaction uncertainty and performance ambiguity. Transaction costs begin to be incurred during the preparation of a transaction and continue after it has been completed. Very high transaction costs may mean that an otherwise desirable transaction will be avoided. The desire to minimize transaction costs may lead to a reshaping of the transaction, internally or in ways that may include market internalization and mergers and acquisitions, thereby altering the organization, size and/or scope of a firm. As a result, transaction costs are also considered in the exercise of competition and regulatory policy