Transaction Costs in Inter-Organizational Systems: Theory and Selected Examples in Supply Management

Transaction Costs in Inter-Organizational Systems: Theory and Selected Examples in Supply Management

Michael Essig (Bundeswehr University Munich, Germany) and Raphael Boerner (Bundeswehr University Munich, Germany)
DOI: 10.4018/978-1-60960-768-5.ch004
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Abstract

Besides describing the core elements of TCE, this paper also shows the application of this concept for purchasing and supply decisions. Therefore, we do have a closer look on outsourcing problems, sourcing strategy decisions, and information technology/e-procurement adoption.
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Introduction

Transaction Cost Economics (TCE) was once described as “revolutionary” in economic theory. Even though this seems to be a bit excessive, TCE is a major approach to combining the rigorous instruments of microeconomic analysis with the practical relevance of incomplete markets. Instead of comparing “relevance versus rigor,” TCE offers the opportunity to combine both aspects through scientific research that combines a sound theoretical basis with concrete implications for management.

The fact that transaction costs occur both within companies and among companies in a market make TCE an ideal approach for inter-organizational (information) systems. Additionally, as a microeconomic-based approach, it can also be used for managerial purposes. In this chapter, we have determined an inter-organizational approach by using the perspective of a company using (and buying) outside resources, which means a concentration of supply management activities.

To develop these managerial and inter-organizational insights, we first start with the basics of transaction cost economics which ensures an understanding and comprehension of the context. This chapter illustrates the state of the art in TCE which implies a narrow description of the core elements of TCE, the problem of uncertainty and finally the current status in research.

In the second part of the present work, we are applying TCE to selected examples in/for procurement. The applications relate to outsourcing, procurement strategy formulation and e-procurement adaption.

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