When the transaction costs of operating through the market are too high:
A) ﬁrms are more likely to grow vertically up or down the vertical chain.
B) ﬁrms are less likely to internalize its transactions.
C) ﬁrms will move from producing general assets to speciﬁc assets.
D) contracts speciﬁed by the ﬁrm are more likely to be complete.

Question

Quizplus · Accepted Answer

When transaction costs in the market are high, firms are more likely to grow vertically (either upstream or downstream) to reduce those costs by internalizing transactions that would otherwise be conducted through the market. This is a strategy to control more of the supply chain and reduce reliance on external markets, where negotiating and enforcing contracts can be costly and inefficient.

When the Transaction Costs of Operating Through the Market Are