The Make-or-Buy Decisions: Lessons from Empirical Studies

Peter G. Klein

Chapter 17 in Handbook of New Institutional Economics, 2008, pp 435-464 from Springer

Abstract: The “transaction cost” theory of the firm introduced by Coase (1937) has become a standard framework for the study of institutional arrangements. The Coasian framework helps explain not only the existence of the firm, but also its size and scope. Why, in Coase’s (1937, pp. 393–94) words, “does the entrepreneur not organize one less transaction or one more?” Some firms are highly integrated: IBM, for example, produces many of its components and software and maintains its own sales force for mainframe computers. Others are much more specialized: Dell Computer outsources virtually all its hardware and software components, selling directly to end users through its catalog and website, while the shoe company Reebok owns no manufacturing plants, relying on outside suppliers to make its products. U.S. manufacturing and service companies are increasingly contracting with specialized information technology firms for their computing and data warehousing needs, spending $7.2 billion on outsourced computer operations in 1990. Standard and Poor’s estimates total worldwide outsourcing for 2003 at $170 billion.

Keywords: Transaction Cost; Governance Structure; Vertical Integration; Strategic Management Journal; Transaction Cost Economic (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1007/978-3-540-69305-5_18

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