1 / 13

A Transaction Cost Approach to Make-or-Buy Decisions

A Transaction Cost Approach to Make-or-Buy Decisions. Gordon Walker and David Weber Administrative Science Quarterly, 29 (1984): 373-391. Focus of This Paper. This paper focuses on the Make-or-Buy decision as a paradigmatic problem for analyzing transaction costs. Structure of This Paper.

Download Presentation

A Transaction Cost Approach to Make-or-Buy Decisions

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. A Transaction Cost Approach to Make-or-Buy Decisions Gordon Walker and David Weber Administrative Science Quarterly, 29 (1984): 373-391

  2. Focus of This Paper • This paper focuses on the Make-or-Buy decision as a paradigmatic problem for analyzing transaction costs.

  3. Structure of This Paper • Reviewing existing theory; • Assumptions for the study in this paper; • Building models for testing the theory Hypothesis; Data; Method; Results • Discussion

  4. Reviewing Existing Theory • Ways of Managing the Buyer-Supplier relationship 1. Ouchi, Harrigan, Blois 2. This paper use “Prototypical choice” • Anderson(1982) and Monteverde & Teece (1982a) 1. Asset specificity; uncertainty 2. Asset specificity on backward integration

  5. Reviewing Existing Theory • Williamson’s Efficient boundaries Framework (1981) 1. The administrative mechanisms whose efficiency is at issue 2. The dimensions of transactions that determine how efficiently a particular administrative mechanism performs 3.

  6. Assumptions • Assume sufficient uncertainty was inherent in all transactions – difficult for buyer to neutralize potential supplier opportunism effectively through contingent claims contracts • Assume different types of uncertainty influenced transaction costs independent of the level of asset specificity • Consider two types of uncertainty – volume (i.e., demand) and technological

  7. Model in This Paper - Hypotheses

  8. Model in This Paper - Indicators

  9. Model in This Paper – Data and Methods • 60 decisions; one component division of a large U.S. automobile manufacturer; three years • Un-weighted least squares (ULS)

  10. Model in This Paper - Results

  11. Model in This Paper - Results Supplier Competition (reverse scale) Supplier Production advantage -.315* -.198 Buyer experience .862* Technological uncertainty -.316* .205* .155 .034 Volume uncertainty -.284* Make or Buy decision

  12. Discussion Limitations of this paper • Small sample size; data from single corporation division – limit the generalizability of findings • Relative simplicity of the components – failure of part of the model For managers’ use: when more information is needed? • Data were available as a base for judgments • Data must be related to more general experience • Manager’s judgment based on extensive general experience rather than specific data For Future Study • Implicit assumption – costs of administering inter-functional coordination within the firm were virtually independent of the transaction costs associated with contracting in the market – Is it valid? Other Discussions

  13. Thank You!

More Related