Transaction Cost
Transaction cost is the cost associated with making an economic exchange. It is the cost incurred when buying or selling goods, services, or financial assets. Transaction costs include search costs, negotiation costs, enforcement costs, and information costs. Transaction costs are a major factor in the decision-making process of businesses and individuals when deciding whether or not to engage in a transaction. Transaction costs can be direct or indirect, and can vary depending on the type of transaction.
History of Transaction Cost
The concept of transaction cost was first introduced by the economist Ronald Coase in his 1937 paper, “The Nature of the Firm.” In this paper, Coase argued that firms exist because they are able to reduce transaction costs. He argued that firms are able to reduce transaction costs by internalizing activities that would otherwise be conducted in the market. This means that firms are able to reduce the costs associated with searching for and negotiating with suppliers, enforcing contracts, and obtaining information about the market.
Since Coase’s paper, the concept of transaction cost has been widely used in economics, finance, and other fields. Transaction cost has been used to explain the structure of firms, the behavior of financial markets, and the structure of international trade. It has also been used to explain the behavior of individuals and firms in the context of mergers and acquisitions.
Transaction Cost Comparison
| Type of Transaction | Transaction Cost |
|---|---|
| Buying a Car | $2,000 |
| Buying a House | $10,000 |
| Buying a Stock | $50 |
| Buying a Bond | $100 |
Summary
Transaction cost is the cost associated with making an economic exchange. It is the cost incurred when buying or selling goods, services, or financial assets. Transaction costs include search costs, negotiation costs, enforcement costs, and information costs. The concept of transaction cost was first introduced by the economist Ronald Coase in his 1937 paper, “The Nature of the Firm.” Transaction costs can vary depending on the type of transaction. For more information about transaction cost, you can visit websites such as Investopedia, The Balance, and Investing.com.
See Also
- Opportunity Cost
- Marginal Cost
- Fixed Cost
- Variable Cost
- Sunk Cost
- Transaction Fee
- Transaction Risk
- Transaction Processing
- Transaction Analysis
- Transaction Management
