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Are there generalizable elements?
- apriori yes, if actors do 
not make random decisions
- study of Transaction Cost 
Theory

There are frictions in the 
coordination of production
An organization that reduces them improves its performance
- ensures production is 
completed
- limits the negative impact
of unforeseen events

Transaction : 
occurs when a good or service
is transferred across a tech
nologically separable interface
Examples: 
For a brand producing road bicycles:
- purchase of carbon wheels,
- transfer of aerodynamic data
for frame design,
- customer feedback and after
sales service, insurance..

As the transaction takes time:
 1. Contextual uncertainty
 2. Behavioral uncertainty
 - Limited rationality
 - Opportunistic behavior (likely but not systematic)
 - Limited ability to forecast the future
 
 Actors decide between reducing
 uncertainty (completing the
 transaction) vs. costs of 
 reducing uncertainty
 (contractualizing, internal 
 governance)
 - Make: internal production
 control, administrative 
 costs (integration)
- Buy: no internal governance, 
risk of partner defection, 
costs of contract creation 
and enforcement (outsourcing)

Transaction Costs : 
The comparative costs of 
planning, adapting, and 
monitoring task-related 
transfers of rights under 
alternative organizational
arrangements

 An increase in asset specificity 
 (σ) and/or contract incom
pleteness (ρ):
- increases the relative 
benefit ofhierarchy over 
the market.
- reduces cost-based 
incentives.