COST ESTIMATING – MAKE OR BUY?

Make , Buy , or Cooperate ?

In 1937, Ronald Coase argued that firms will exist only in environments in which firms perform better than markets could. To create space for firms, Coase suggested that some environments might be plagued by “transaction costs” that cause markets to perform poorly. Coase’s paper was to become the cornerstone of the economic theory of the firm (i.e., the “make or buy” decision: which activities ...

A Transaction Cost Approach to Make-or-Buy Decisions

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Transaction Cost Approach to Component Make-or-Buy Decisions

Make vs Buy in a Monopoly with Demand or Cost Uncertainty

The issue of technical progress under uncertainty is nested into the debate on vertical integration vs outsourcing, to show that, in general, the former is preferable to the latter in terms of both expected profits and technological efficiency. It is then shown that there exist (i) an optimal two part tariff where the unit price set by the upstream firm is conditional upon its R&D effort, and (...

Make-or-Buy in the Age of Open Source: A Transaction Cost Analysis

Since their appearance, open source communities have become increasingly successful and seemingly pose a real threat to traditional proprietary software vendors. Because open source software has now achieved both recognition and legitimacy, obtaining products and services from communities offers firms an additional alternative in traditional make-or-buy decisions. Transaction cost economics has...