Which of the following may increase transaction costs?
A) Investing in specific assets
B) Having many possible exchange partners
C) Adopting formal linkage mechanisms
D) Operating in a stable environment

Question

Quizplus · Accepted Answer

Investing in specific assets may increase transaction costs because it creates dependency on a specific exchange partner and limits the ability to switch partners. This can increase the costs of negotiating, monitoring, and enforcing contracts. Having many possible exchange partners (B) can actually decrease transaction costs by increasing competition and reducing bargaining power of any one partner. Adopting formal linkage mechanisms (C) such as contracts or joint ventures can also decrease transaction costs by providing clear expectations and reducing the need for continuous negotiation. Operating in a stable environment (D) can decrease transaction costs by reducing uncertainty and the need for continuous adaptation to changing conditions.

Which of the Following May Increase Transaction Costs