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Site specificity, dedicated assets, and the need for customized production facilities increase the vertical integration in a number of industries.
The concept of transactions costs was first described by Ronald Coase in his paper “The Nature of the Firm” in 1937. He identified governance costs as important determinants of firm boundaries, together with the costs of using the market. Transaction cost economics (TCE) studies how trading parties protect themselves from the hazards which arise from their relationships. As contracts are always incomplete due to bounded rationality, difficulties to specify and measure performance and asymmetric information, parties participating in various types of cooperation are subject to various risks which incur costs...
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