Transaction Cost Economics As a Theory of Supply Chain Efficiency

Production and Operations Management · 2020 · Volume 29 · Issue 4

Abstract

Transaction cost economics (TCE) is one of the most widely referenced organization theories in operations and supply chain management research. Even though TCE is a broadly applicable theory of governance, one of its specific topics of interest—the make-or-buy decision—readily aligns with some of the central research questions on how firms manage supply chains. However, both general management and operations management researchers sometimes misunderstand and misapply TCE's aims, assumptions, and logic. A common mistake is to read TCE as a theory of competence or of power. While TCE relates to both, TCE is essentially a theory of efficient governance of transactions in particular and exchange relationships in general. Our purpose in this study is to review the intellectual and theoretical foundations of TCE, its primary aims, and its applicability as a theory of supply chain efficiency. To this end, we discover much common ground between TCE and research in operations and supply chain management. We close by discussing implications for future research, focusing on how operations and supply chain management researchers could contribute to broader academic conversations on management and governance.

Keywords

transaction cost economics, supply chain efficiency, governance, make-or-buy decision, vertical integration

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