A Transaction Cost Approach to Make-or-Buy Decisions

Gordon Walker; David Weber

doi:10.2307/2393030

Abstract

Gordon Walker and David Weber This study focuses on make-or-buy decisions as a paradigmatic problem for analyzing transaction costs. Hypotheses developed from Williamson's efficient boundaries framework were tested in a multiple-indicator structural equation model. The influence of transaction costs on decisions to make or buy components was assessed indirectly through the effects of supplier market competition and two types of uncertainty, volume and technological. In addition to transaction costs, the decisions were hypothesized to be predicted by both buyer production experience and the comparative production costs between buyer and supplier. The hypotheses were tested on a sample of make-or-buy decisions made in a division of a U.S. automobile company. The results show that comparative production costs are the strongest predictor of makeor-buy decisions and that both volume uncertainty and supplier market competition have small but significant effects. The findings are explained in terms of the complexity of the components and the potential pattern of communication and influence among managers responsible for making the decisions.*

Keywords

Transaction costCompetition (biology)Production (economics)Sample (material)Database transactionIndustrial organizationMicroeconomicsBusinessEconomicsMarketingComputer science

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Publication Info

Year: 1984
Type: article
Volume: 29
Issue: 3
Pages: 373-373
Citations: 1045
Access: Closed

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APA Style

                            
                                    Gordon Walker, 
                                
                                    David Weber
                                
                            (1984). 
                            A Transaction Cost Approach to Make-or-Buy Decisions. 
                            Administrative Science Quarterly
                            , 29
                            (3)
                            , 373-373.
                            https://doi.org/10.2307/2393030

Identifiers

DOI: 10.2307/2393030