Determinants and Management of make-and-buy: Potential TCE Explanations


Over the last two decades, the standard approach to analyze the choice of organizational governance forms has been transaction cost theory (Leiblein, 2003). Under the assumption that economic actors are boundedly rationale, opportunistic, and risk neutral, TCE argues that the efficiency of an organizational arrangement depends on the three characteristics of the underlying transaction: (1)asset specificity, (2)uncertainty, and (3) the frequency of the transaction (Williamson, 1975/1985). In case of high levels of asset specificity, uncertainty, and frequency of the given transaction, hierarchy is considered to be the efficient institutional arrangement, while market exchange proves best when an un-or little specific transaction is carried out rarely with only few elements of uncertainty. This distinction of institutional arrangements traces back to preliminary reasoning by Coase, who has treated economic institutions as dichotomous and mutually exclusive, since market and hierarchy were conceptualized as two ends of a continuum (Coase, 1937). Williamson subsequently extended the view of either market or hierarchy to a tripartite either-or categorization, including additionally hybrid forms of organization (Williamson, 1985). He argues that an intermediate specific, but frequently repeated transaction shall be organized in a hybrid form such as a cooperation or strategic alliance to accomplish the transaction cost minimizing and hence most efficient organizational mode. His perspective, still, implies that different organizational arrangements are located at distinct stages of a one-dimensional continuum and are therefore considered to be mutually exclusive. Thereby, the underlying assumption is that the governance modes market, hierarchy, or hybrids are substitutes (Pies, 1993:222) that are subjects to a discrete choice.


Transaction Cost Governance Mechanism Environmental Uncertainty Asset Specificity Scope Economy 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Ebers, M., Gotsch, W. (2006). „Institutionenökonomische Theorien der Organisation, Kieser, A.; Ebers, M. (eds.). Organisationstheorien, Stuttgart, Berlin: 247–308.Google Scholar
  2. Nooteboom, B. (1996). Trust, opportunism and governance: A process and control model, Organization Studies, 17(6): 985–1010.CrossRefGoogle Scholar
  3. Williamson, O. E. (1985). The Economic Institutions of Capitalism: Firms, Markets, Relational Contracting, New York, London. 93Google Scholar
  4. Parmigiani, A. E. (2003). Concurrent sourcing: When do firms both make and buy?. PhD Dissertation, Michigan, University of Michigan. 30Google Scholar
  5. Rindfleisch, A., Heide, J. B. (1997). Transaction Cost Analysis: Past, Present and Future Applications, Journal of Marketing, 61(4): 30–55.CrossRefGoogle Scholar
  6. Schnell, R., Hill, P.B., Esser, E. (2005). Methoden der empirischen Sozialforschung, München, Wien.Google Scholar
  7. Ebers, M., Gotsch, W. (2006). „Institutionenökonomische Theorien der Organisation, Kieser, A.; Ebers, M. (eds.). Organisationstheorien, Stuttgart, Berlin: 247–308.Google Scholar
  8. Picot, A. (1982). Transaktionskostenansatz in der Organisationstheorie: Stand der Diskussion und Aussagewert, Die Betriebswirtschaft, 42(2): 267–284.Google Scholar
  9. Williamson, O. E. (2003). Transaction Cost Economics and Economic Sociology, CSES Working Paper Series, Paper #13. 28Google Scholar
  10. Smith, A. (1776). The Wealth of Nations, edited by Edwin Cannan (1904)reprint edition 1937, New YorkGoogle Scholar
  11. Williamson, O. E. (1975). Markets and Hierarchies: Analysis and Antitrust Implication, New York, London.Google Scholar

Copyright information

© Gabler | GWV Fachverlage GmbH, Wiesbaden 2008

Personalised recommendations