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What is transaction cost theory?

Management Dictionary
Governance, Organizational Theory, Public Management, Strategic Management

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Oliver Williamson’s transaction cost theory provides a valuable analytical framework for understanding the mechanisms that govern transactions, organizations, and governance, particularly when facing a choice between internalization and outsourcing. This theory helps explain why certain activities are internalized within vertically integrated organizations, how different governance forms are selected based on transaction costs, and why mergers and acquisitions are often driven by considerations related to transaction costs.

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Keywords

internalization, outsourcing, transaction costs, vertical integration

Author(s)

BESANGER Serge

Professeur

INSEEC-U

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