Information technology, transaction costs and the decision to 'make or buy'

Publisher Website
Google Scholar
Abstract
Information and communication technology (ICT) has a wide ranging impact on business. One of the effects is on the 'make or buy decision'. This is analysed from the perspective of transactzon cost economm (TCE). On the one hand ICT reduces transaction costs by reducing search costs, by facilitating monitoring and control of performance and by yielding a greater flexibility of production, which reduces the transaction specificity of assets. These efiects, favour the decision to 'buy'. On the other hand, ICT reduces economies of scale, in some areas of production, which makes outside production i n a specializedfirm less attractive. Also, ICT may be used to impose switching costs between suppliers and buyers, thereby miszng transaction costs. But such ploys appear to be feasible only temporarily, with a pressure from users and competitors towards standardization and open systems. Thus the effects of ICT are diverse, but on the whole it tends to favour the option to contract out.

This publication has 0 references indexed in Scilit: