• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Transaction cost economics (TCE) is similar to game theory where all the parties to the contract is assumed to understand the strategic situation and will position themselves accordingly;

Extracts from this document...


´╗┐MANAGERIAL ECONOMICS ASSIGNEMENT EVOLUTION OF THE FIRM In the 1840?s the firm was characterised by being family owned. Therefore businesses were small and widely dispersed. Businesses were limited by the infrastructure at the time ? transportation was done mainly by sea; hence it was very slow, communication was also done by the same medium, financing was basically none existent because the banks did not want to take on what seemed at the time a risky venture. If loans were given it was based on personal relationships. There was nothing to prevent price fluctuations in the market. Product technology was not developed. Government was not actively involved in the business environment. In the 1910?s, as a result of the introduction of railways businesses began to expand and looked to vertically integrate. Mass production led to less companies being around but the ones left were much larger and were able to collude in the market; therefore government had to intervene in the market. The infrastructure now facilitated agency-principal relationship in business. The telephone drastically reduced the time spent in communicating and suppliers and distributers could keep abreast of what was happening in the market place so that they would know how to plan production so to minimize oversupply. ...read more.


This concept relies on the fact that decision makers have to work under three unavoidable constraints which are: only limited, often unreliable information is available regarding possible alternatives and their consequences, human mind has only limited capacity to evaluate and process the information that is available and finally, only a limited amount of time is available to make a decision. Opportunism: ?opportunism is a necessary condition for the creation of transaction costs? (Maria Moschandreas, 1997). Opportunism is considered as an endogenous factor in TCE. It forms an inherent part of business relationships. According to Williamson, opportunism is one of the "rudimentary attributes of human nature". Whenever individuals will be given the chance to act opportunistically, they will do so. Behavioral uncertainty: Uncertainty is a situation where the current state of knowledge is such that the order or natures of things are unknown. Although too much uncertainty is undesirable, manageable uncertainty provides the freedom to make creative decisions. Behavioral uncertainty is the uncertainty that may be present in a transaction due to the opportunistic inclinations of the transacting parties (John & Weitz, 1988). Behavioral uncertainty thus results from the possibility for the ?strategic nondisclosure, disguise or distortion of information? by the transacting parties (Williamson, 1985), and thus concerns the chance that a contracting party may behave opportunistically, and thereby harm the other contracting party. ...read more.


On this basis, ?l?Association du Maroc competitive? have introduced vertical integration in the Moroccan agro-food industry. Canned olives sector is then divided into three segments which are: field production, manufacturing and commercialization. By combining these three segments, the farmer, the firm and the wholesaler became, henceforth, a unique unit. In fact, Specialist suppliers can achieve a size and degree of specialisation that enables them to conduct activities more effectively and efficiently than when they are conducted inhouse. Information technology and human resource management represent two activity areas where inhouse providers can experience difficulty competing with specialist suppliers (Domberger, 1998, Kakabadse and Kakabadse 2000). Farmer as specialist supplier of raw olives and the wholesaler as specialist supplier of information and clients needs contribute to the economies of scale. The objective of this integration is to dissolute information waste and lack of control over quality in the streamline of production chain. Then, in the upstream level, firms control the quality of raw olives by owning their own olives field or by contracting a sever contracts with farmers. In the other hand, firms produce in response to the specifications expressed in terms of costumer?s needs and preferences. Quality and quantity are, then, two correlated criterions which condition the production process. The unique unit manages and adapts then its production in terms of quality and quantity according to the market movement. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Management Studies section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Management Studies essays

  1. General Electric Strategic Plan

    General Electric has outlined some long-term objectives for the financial aspect of the company as well as created a philosophy that addresses the other areas necessary to long-term growth. CEO Jeff Immelt outlined these objectives in his letter to GE investors.

  2. Metabical Co. Pricing policy Case Study. In order to profitably satisfy customer needs, ...

    1.18 0.94 1.29 Year 2010 Captured market share 5% 5% 5% Q rc (M) 0.60 0.48 0.22 Year 2011 Captured market share 5% 5% 5% Q rc (M) 0.60 0.48 0.22 Year 2012 Captured market share 5% 5% 5% Q rc (M)

  1. Innovation For Business Success. It is possible to be innovative in both large ...

    Executives 'fold them in' to the innovations. Every one of the 24 staff talks to all the managers, there is a close relationship and little sense of hierarchy and formality. All managers are always accessible to all staff and communication is as needed, and productive.

  2. General Management - organisation, leadership and theories.

    6 The subscribed social capital verves at ......... bank, having the total sum of 30000 euro and the receipt no.134567 is divided in .... social parts, each one of 10000 euro. Art. 7 The only one associate can increase the social capital. CHAPTER IV The company administration Art. 8 The only one administrator represents the company, ............................. Art.

  1. Ryanair Holdings PLC - Strategic Audit

    Prior to joining Ryanair in 1988, Michael worked as an aircraft engineer with Fields Aircraft Services and McAlpine Aviation, working primarily on executive aircraft. Howard Millar was appointed Deputy Chief Executive and Chief Financial Officer on January 1, 2003, having served as Director of Finance of Ryanair since March 1993.

  2. counselling theory

    When th? human being ?s 'off-track' due to ? particular situation then these situations are assessed using th? needs and assessed whether one or more ?f them ?s being frustrated or not. This gives rise to th? feelings ?f off handedness resulting either ?n some corrective action or frustration.

  1. Outsourcing Report. Objectives are: To ...

    Industrialized countries have been promoting trade openness in these areas. There are adjustment costs that accompany this trade. Despite these costs, poor nations have subscribed to trade rules and have opened their market in these economic sectors. While assessing the mutual advantage in the economic exchange, there are certain other impacts.

  2. Advanced Strategic Management

    By 1995, after the consistent pursuit of its low-cost business model, Ryanair celebrated its 10th birthday by carrying 2.25 million passengers. With plans to buy an additional 112 aircraft from Boeing the phenomenal growth is planned to continue. It is forecast that by 2008 Ryanair will have 118 planes in operation with an option to increase this number further.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work