Profit Centers, Single-Source Suppliers and Transaction Costs
Issue Date
1991-03Author
Walker, Gordon
Poppo, Laura
Publisher
Sage Publications, Inc. on behalf of the Johnson Graduate School of Management, Cornell University
Type
Article
Article Version
Scholarly/refereed, publisher version
Published Version
http://www.jstor.org/stable/2393430Metadata
Show full item recordAbstract
This paper addresses criticisms of transaction-cost theory that it overstates the effect of asset specialization on vertical integration and understates the costs of managing interunit relationships within an organization, particularly for nonstandard organizations and markets. We apply the theory simultaneously to decentralized supply relationships in a manufacturing corporation and to the corporation's relationships with single-source suppliers. Our results support the core proposition of the theory-that specialized assets have lower transaction costs within the organization. However, the hybrid characteristics of these supply relationships challenge both the theory's basic assumptions and its predictive power. Corporate decentralization and relational contracting in the market diminish the role of asset specificity as a necessary condition for low transaction costs in-house and as a sufficient condition for high transaction costs in the market. Therefore, how the theory should be used as a predictor of shifts in the current boundaries of the corporation is unclear.
Description
© 1991 by Cornell University
ISSN
0022-1090Collections
Citation
Walker, Gordon and Laura Poppo (1991), "Profit Centers, Single-Source Suppliers and Transaction Costs," Administrative Science Quarterly, 36 (1), 66-87.
Items in KU ScholarWorks are protected by copyright, with all rights reserved, unless otherwise indicated.
We want to hear from you! Please share your stories about how Open Access to this item benefits YOU.