Relevant cost

Abstract: This article tests a transactions cost theory of vertical integration with data from the U S. automobile industry. Existing theory is first refined to take into account industrial know-how and the cost of transferring such know-how. A testable model is then developed, which is estimated by using probit techniques. The results support the view that transactions cost considerations surrounding the development and deepening of human skills have important ramifications ]br delineating efficient organizational boundaries.

Abstract: Gordon Walker and David Weber This study focuses on make-or-buy decisions as a paradigmatic problem for analyzing transaction costs. Hypotheses developed from Williamson's efficient boundaries framework were tested in a multiple-indicator structural equation model. The influence of transaction costs on decisions to make or buy components was assessed indirectly through the effects of supplier market competition and two types of uncertainty, volume and technological. In addition to transaction costs, the decisions were hypothesized to be predicted by both buyer production experience and the comparative production costs between buyer and supplier. The hypotheses were tested on a sample of make-or-buy decisions made in a division of a U.S. automobile company. The results show that comparative production costs are the strongest predictor of makeor-buy decisions and that both volume uncertainty and supplier market competition have small but significant effects. The findings are explained in terms of the complexity of the components and the potential pattern of communication and influence among managers responsible for making the decisions.*

Abstract: In a typical purchasing situation, the issues of price, lot sizing, etc, usually are settled through negotiations between the purchaser and the vendor Depending on the existing balance of power, the end result of such a bargaining process may be a near-optimal or optimal ordering policy for one of the parties (placing the other in a position of significant disadvantage) or, sometimes, inoptimal policies for both parties This paper develops a joint economic-lot-size model for a special case where a vendor produces to order for a purchaser on a lot-for-lot basis under deterministic conditions The focus of this model is the joint total relevant cost It is shown that a jointly optimal ordering policy, together with an appropriate price adjustment, can be beneficial economically for both parties or, at the least, does not place either at a disadvantage

Abstract: A theory and methodology are developed for explicitly considering the cost of comparing diverse choice alternatives. The theory allows (1) explicit analytical measures of the cost of using various simplified decision strategies, and (2) predictions regarding the distribution of mistakes a consumer is likely to make when reducing decision-making effort.