A Transaction Cost Approach to the Effects of Network Growth on Cost and Price

Abstract

ABSTRACT Modern society contains many transaction relationships that are supported by information and communication technology. Therefore, the evolution of information and communication technology extends the potential applications of transaction cost theory. This paper also contributes to the extension. This paper aims to examine the role played by information in transactions from the standpoint of transaction cost theory; as a result, this paper will describe the effects of information and communication technology on transactions in accordance with transaction cost theory and describe the simultaneous achievement of cost economizing and higher prices as an application of transaction cost theory. Using information and communication technology can help to economize transaction costs. However, it is also worthwhile to mention that rising costs of transactions become apparent simultaneously, particularly when network growth facilitates an increase in the number of new potential transaction partners. Even more important is the fact that when we attempt to return to the criteria for determining efficiency in transaction cost theory, we find the possibility of increasing the price of a good or service. Keywords: Transaction cost, Network, Price, Information, Communication