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A Course in Microeconomic Theory$
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David M. Kreps

Print publication date: 2020

Print ISBN-13: 9780691202754

Published to Princeton Scholarship Online: May 2021

DOI: 10.23943/princeton/9780691202754.001.0001

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Transaction cost economics and the firm

Transaction cost economics and the firm

(p.742) (p.743) Chapter Twenty Transaction cost economics and the firm
A Course in Microeconomic Theory

David M. Kreps


This chapter continues the discussion of the previous chapter about models of the firm, with consideration given to models where the firm is something more like a market than a consumer. It considers how a transaction placed within the context of a firm is different from the “same” transaction placed within a market, which is the subject of transaction cost economics. In transaction cost economics, the unit of analysis is the individual transaction. In this theory, firms are not entities, things of the rough category of the consumer; instead firms are institutions, in the rough category of the market. The line between firms and markets is rather fuzzy, but what line there is is drawn along the dimension of the frequency of interaction, the relative permanence of certain legal and market relationships, and the extent to which parties to a transaction are “tied” to one another.

Keywords:   firms, markets, individual transaction, transaction cost economics, market relationships

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