Please enable JavaScript.
Coggle requires JavaScript to display documents.
VSP2 - Coggle Diagram
VSP2
Three Key Transaction Costs
Adverse Selection
ex. The Market for Lemons
In used car market, sellers know more about the value of their cars than buyers. Therefore, buyers are hesitant to pay more than the average price, regardless of the car's quality. This benefits sellers of lemon cars (bad cars) but puts sellers of good cars at a drawbacks.
A market situation where buyers and sellers have different information.
Moral Hazard
Someone takes on more risk because they do not have to bear the full cost of that risk.
Holdup Problem
Parties avoid cooperation fearing it gives the other increased bargaining power and lowers profits despite potential efficiency gains.
Three Key Administrative Costs
Weak Incentives
An internal unit may be less laser focused on delivering the best performance as an external supplier.
Principle-Agent Problem
It refers to conflicts of interest between a principal and agent who acts on the principal's behalf.
Lack of Dynamism
Lack of flexibility or slow response to changing market or technological trends due to organizational complexity or bureaucracy.
Transaction Cost Economics (TCE)
Deals with both transactions or economic changes
ex.The costs of negotiating, monitoring, enforcing contracts
Administrative Cost
The costs that relate to regular business operations
ex. rent, utilities, equipment, supplies,