Determining the boundary of firm The consideration of transaction cost

The causes of transaction cost Bounded rationality –Limited knowledge about contracting  reduced market transactions Environmental uncertainty –Many changes caused re-negotiation frequently Information asymmetries/compactedness –The circumstances for inducing the opportunistic behavior of adverse selection/moral hazard Asset specificity –Lower reselling/disposal/non-salvageable opportunity  higher TC, prohibitively expensive cost Small number (monopoly/monopsony) –Higher transaction cost while confronting the fewer sellers or buyers

Integration decision Transaction frequency low high Asset specificity Trilateral integration market Internal integration Market/integration Bilateral integration Relational contracting

The newspaper/book publisher Newspaper –Daily publishing and printing frequently without interruption –If contracting outside, the publishing operation could be locked by the printer Book –Scheduled book publishing –Project-based negotiation and contracting by means of price bidding