4P25: Types of transaction costs

Question 1

List the 6 types of transaction costs:

Answer 1

1. Search and information costs
2. Beginning and decision costs
3. Policing and enforcement costs
4. Planning and safeguarding
5. Adopting and servicing costs
6. Monitoring and evaluation costs

Question 2

Define and provide an example for search and informational costs:

Answer 2

Costs such as those incurred in determining that the required good is available on the market and who has the lowest price
- Exp: Web search, background checks, revenue reports reveue

Question 3

Define and provide an example for beginning and decision costs

Answer 3

costs required to come to an acceptable agreement with the other party to the transaction, drawing upon appropriate contract
Exps: Time to negotiate, location to negotiate (rented space, etc)

Question 4

Define and provide an example for policing and enforcement costs

Answer 4

Are costs of making sure the other party sticks to the terms of the contract and taking appropriate action (often via legal system) if this turns out to be the case
-exp: legal fees, contract draft fees,

Question 5

Define and provide an example for planning and safeguarding

Answer 5

Eg: sponsorship kits, venue preparation, research on prospective partners, videos, material
exp: venue prep, insurance, sponsorship kit, etc

Question 6

Define and provide an example for adopting and servicing costs

Answer 6

Eg: communication, coordination, negotiation, hiring account representatives, developing formal strategic plans, establishing a sponsorship committee
- exp: strategic plans for the games, IT specialists, account reps, etc

Question 7

Define and provide an example for monitoring and evaluation costs

Answer 7

Eg: report of sponsor exposure surveys at events, monitor ambush marketers
exp: Tracking clickthrough/conversion rates for the sake of customer AND yourself so you know what is effective for you

Question 8

Define opportunism

Answer 8

The notion of self-interest suggests that one or more party may act with “guile” (Williamson, 1979)

Question 9

define Bounded rationality

Answer 9

Partners cognitive limits in a transaction in that they do not have complete info (price, quality, time of delivery, etc)

Question 10

List the 4 ways to control for opportunism and bounded rationality

Answer 10

Determine
Determine whether it is opportunistic behaviour or an honest misunderstanding, misinterpretation or inadequate capabilities on their part.

Engage
Engage with a reputable company from the outset

Establish
Establishing mechanisms to monitor how assets (eg: technology) are being used

Offer
Offer to teach, guide, supervise the application of the resource (eg: tech) to ensure activities are understood (and to learn what might hinder appropriate use of the asset)