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Note that transaction costs are only one of a number of potential determinants of vertical co-ordination. For example, the existence of economies and diseconomies of scale influence whether it is economically efficient for a firm to be vertically integrated. Also, the capital investment requirements and additional risks involved in vertical integration could outweigh any transaction cost advantages of integration. Sometimes, firms vertically integrate to reduce their taxation burdens or to circumvent restrictive import regulations. Although these other Influences are important, this paper deals with transaction cost motivations for vertical co-ordination.
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26
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3543083723
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note
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If only one party (A) has made an asset specific investment, it Is probably party A that will vertically integrate with the other party (B) because of the risk of B practising PCOB. Where both parties have made an asset specific investment, either vertical integration, a long-term contract or a strategic alliance may result. The outcome will depend on other features of the transaction, such as the level of uncertainty.
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3543146972
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note
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Clearly, other non-transaction cost factors may influence a farmer's choice of marketing channel. However, the purpose was to identify important transaction costs. Also, the transaction costs incurred by processors In purchasing finished beef cattle will affect their choice of supply channel, therefore influencing vertical co-ordination in the supply chain. The same survey method could be used to identify the important transaction costs facing processors.
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39
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