March 15, 2007 9:39am CST
what is this transaction cost in e commerce?
15 Mar 07
It is the total of all costs that a buyer and a seller incur as they gather information and negotiate a purchase-sale transaction. Consider the example of a sweater dealer who could obtain sweaters by engaging in market transactions with a number of independent sweater knitters. The transaction cost incurred by the dealer includes the cost of identifying the knitters, visiting them to negotiate the purchase price, arranging for the delivery of the sweaters and inspecting them etc. The knitters would also incur costs such as purchase of knitting tools, materials etc. Also since a knitter could not know whether any dealer even approached them for their products so the investment that they make will have an uncertain yield. Such uncertainties are a significant transaction cost for the knitters.