The modern world is dynamically developing in all types of activities, improving and creating unique objects. In view of such dynamics, new concepts and terms appear that are not always understood by many people. For most people, the word “costs” is clear, but it is not clear what costs are related to transactional. This article will open up this topic and help to understand the necessary terms, reveal the essence and analyze the types of this concept.
Why are transaction costs needed and where are they used?
It is quite natural that any company, company or production is engaged in the development of any services or goods, is engaged in the supply of food or other types of raw materials necessary for the life of people. That is why special conditions are created for the quality performance of the work of these companies. Transaction costs are an inevitable process for many of them. What is included in this concept? Why do we need such costs? What is their purpose?
Transaction costs - these are the costs that are spent on finding the necessary information, negotiating, protecting the property rights of a company or enterprise. This also includes the costs of avoiding low-quality contractors who are able to deviate from the agreements that were established between them and the company for their own benefit and profit. It is such components that can cause enormous damage to the enterprise, which saved or completely abandoned such costs. Therefore, more and more companies are paying special attention to transaction costs, in addition to many other expenses related to the conclusion of necessary contracts.
The meaning of the theory
Several years ago, the theory of transaction costs was created, and it has many followers. Its significance is still valid today, since it fully justifies itself in the world market. Everyone will agree that in life there are many situations where people want to deceive, to appropriate their own finances, without giving anything in return. Alas, the same situation is widespread among many structures of countries. The essence of the theory of transaction costs is to properly organize all stages of the transaction: find the necessary counterparty, organize negotiations, discuss all the necessary conditions for creating an agreement, conclude the transaction itself and control the process of fulfilling all conditions on both sides.
Naturally, such a theory could not be ignored. And this is due to many reasons. Here, the entry of some countries into the world market, the influence of the state on the conclusion of certain transactions, and the division of labor between different countries, and therefore their markets, play a role. Also known are situations where integral property rights are split into partial rights belonging to different owners. In this case, the transaction costs of property rights should also change. And in countries where market relations are weakly strengthened, this theory has special significance. It helps to minimize the risks associated with distorted information about the services and goods supplied by a particular counterparty.
Classification of transaction costs
In general, transaction costs are many. Therefore, there is a certain classification of transaction costs. The first group includes costs, which determine the constituent details of the contract.In other words, the search for goods and services on the market that are necessary for a particular company or firm.
The second group includes the costs associated with finding partners. It is necessary not only to find them, but also to identify prices for their goods and services, to assess the likelihood of working with them, their ability to fulfill the terms of the contract, etc. The third group includes the costs associated with direct coordination. The interests of the customer are important here, and the whole structure is implemented in such a way as to organize negotiations between the parties.
The fourth group includes the costs that must be spent on the acquisition of additional information on the transaction. And the last, fifth group includes the costs associated with opportunism. It would seem a complicated word, but its meaning has already been said in this article. This is the concept of an unscrupulous artist who wants to cash in on the customer.
What may result from the lack of transaction costs
Of course, many authors create and isolate other types of transaction costs, but their general essence is absolutely unchanged. The names of certain groups may vary, but not their meaning. It is also natural that all kinds of costs for concluding a contract are not always involved. It all depends on the situation, on the purchased service or product, on the information received earlier.
Transaction costs include those that may be associated with a less serious contract. It is worthwhile to understand that the costs can increase significantly due to the fact that the search for the necessary information takes a long time, that the signing of the necessary contract is delayed, and that not all risks can be reduced to zero with the help of costs.
In general, if we consider in more detail, then no costs can fully guarantee a hassle-free outcome. Why then are they needed at all? Why spend the money? It is also a mistake to think that transaction costs cannot help. If employees have a high-quality approach to their duties and carry out suitable work, then so many consequences can be avoided and not lose the financial component of the transaction.
State support for firms and contracts
The transaction costs of the company, as already mentioned, include the costs of protecting property rights. Moreover, such costs occupy a rather important position, they are given special attention. In fact, there is a vast array of different firms. These may include small enterprises in themselves, and huge companies, which include many different divisions.
However, they all want to make big profits, income, spending the minimum amount of money on this. But such processes should be approached very carefully and seriously. If the owner constantly violates the rights, this exacerbates his situation. How? It's pretty simple. He spends too much time and finances in order to return these rights again. He has to allocate a lot of money to the state, judicial authority, which are involved in law enforcement. Without the support of such devices, it is quite difficult and expensive to protect property.
Therefore, the bulk of all existing firms prefer to officially register and record contracts. This gives a kind of guarantee that the terms of the contract will be respected and the rights of the company will be preserved. Otherwise, the registered company will be supported by the state apparatus of power and will punish the non-traveler performer.
Variety of problems
Transaction costs in the economy are a considerable problem for those who are forced to take advantage of them. It would seem, but what's the problem? The company has funds, it manages them, pays the necessary costs. However, any company or firm must count and see not only the profit from the contract, but also the losses associated with it.It is often very difficult to calculate transaction costs. With what it can be connected?
There are quite a few factors. It is worth considering them in more detail. Naturally, some part cannot be calculated directly. The example is very simple: there is no exact and definite time that will be spent on defending numerous queues in any institutions and filling in many reporting forms. There are also costs that are not related to the cash payment and require an equivalent exchange for any service. In addition to all this, there are still many other costs that can be attributed to informal elements. And the more often you have to use them, the more difficulties arise in solving problems associated with a transaction or contract. It should be understood that if there are informal elements in costs, this does not mean their illegality.
Avoiding Bankruptcy
Market transaction costs can be applied not only to customers and partners, but also to competitors. And it would seem, why spend money also on this information, on its search and processing? And here the answer is pretty obvious. As already mentioned, any company wants to make a profit. And even better, that this profit is constant. This is necessary to maintain the company so that it does not go bankrupt. Of course, you need to calculate everything in such a way that the costs paid off and led to a certain income.
What then need to know about competitors? Obviously, it is necessary to have a sufficient amount of information about competing firms, their policies and strategies for working in the market. It is then that you can improve the work of your own company, create your own unique strategy and protect the company from failure and subsequent bankruptcy. In addition to all this, transaction costs should help in obtaining the necessary information about the benefits of concluding a contract or its inefficiency. The collection, processing, constant monitoring of changes in such information can significantly reduce costs.
The choice of workers
Transaction costs are costs that cannot be avoided, but it is quite possible to reduce them. There are many more ways for this process. Any company leader must personally understand what types of costs can exist, what they are aimed at and what benefits and efficiency they can bring. When the question arises of the need to conclude a particular contract or to provide a particular service, the manager himself must consider this situation. His opinion should be the first step in the implementation of this work.
But the whole company must have certain skills and knowledge in order to make efforts and achieve the final result at the highest level. It is necessary to create a professional team that will be able to solve tasks in a short time and bring a certain profit to the company. Here everyone should understand the essence of their duties. Accountant, recruitment manager, manager - all of them are part of a huge mechanism. Therefore, the internal work of the company is also able to disrupt the transaction or bring good profit.
Everyday example
There are a lot of examples of transaction costs in everyday life of people. Each of us encounters them almost everywhere and always. And just like a company or company, it tries to minimize them. For example, a person needs to make repairs in the apartment (or just want to refresh the repair). He can do the repair on his own, or he can hire a separate team of workers who will do any work for a certain amount. Of course, there are teams that will work with their own material, which will significantly increase the cost of such repairs.But there are brigades that will do repair work with the material that the landlord will personally buy. All these are examples of costs that a person will incur to update his apartment. However, there is an option to minimize these costs. The landlord can buy different materials in various shops of the city. Why? Everything is simple. He believes that somewhere is better, somewhere cheaper, etc. Well, and, as mentioned above, the landlord can make repairs on his own, while he spends personal time, which can also be attributed to a certain type of cost.
Complete absence of transaction costs
Transaction costs are a term that can be applied not only to business or market relations. Its value is used in many sectors of human life, but it is important to understand its essence. Of course, there is still a huge variety of different types, subspecies and classifications of these costs.
Many authors studied this concept, compiled a variety of tables and materials to help people. It remains unchanged that this term is very relevant at the moment. Is it possible to say that in the near future it will be possible to completely abandon transaction costs? It seems that so far no one can state this for sure. The world is changing, improving, creating something new. But what awaits people in the future, no one knows for sure. Therefore, many companies and firms around the world use their strategies and policies, which are considered the most effective for them.