The Transaction Costs Theory of the Firm Custom Essay

The Transaction Costs Theory of the Firm Transaction cost theory description The theory regarding transaction cost as put forward by Oliver Williamson and Ronald Coase, highlight that organizations are faced with huge economic costs together with matching economic advantages within the entire transactions or captivities (Carroll, 1999, p.11). Transaction cost theory attempts to give explanations concerning why companies survive, and why they experience expansion or supply activities towards external environment. This theory presumes that companies attempt to minimize resource exchange costs with environment, as well as attempting to minimize exchange cost bureaucracies in the company (Sautet, 2000, p.7). It is therefore clear that companies weigh resources exchange costs with the involved environment, in opposition to bureaucratic costs regarding accomplishment of activities internally. The theory perceives markets and institutions as diverse in coordinating and organizing economic transactions (Williamson, 1981, p.549). In cases whereby higher external costs are experienced compared to internal routine costs of the company,