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The importance of management and transaction costs for large UK firms

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  • Michael Dietrich

Abstract

This article develops an approach to the firm using the principle that any organization is an amalgam of two production functions: a control function and a real function. The resulting non-linear regression equation allows estimation of model parameters that can be used to calculate firm-specific production and transaction costs. The paper uses a sample of large UK firms for the four years 1980, 1986, 1992 and 1997. The parameter and cost estimates appear intuitively plausible given developments in competitive conditions and environmental uncertainties. Broadly speaking the results support the view that transaction cost economizing is a primary determinant of improved firm performance. This result is particularly apparent when monopoly power and the positive dynamic advantages of firm slack are identified.

Suggested Citation

  • Michael Dietrich, 2003. "The importance of management and transaction costs for large UK firms," Applied Economics, Taylor & Francis Journals, vol. 35(11), pages 1317-1329.
    • Handle: RePEc:taf:applec:v:35:y:2003:i:11:p:1317-1329
    DOI: 10.1080/0003684032000095406
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    References listed on IDEAS

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    1. Henry Ogden Armour & David J. Teece, 1978. "Organizational Structure and Economic Performance: A Test of the Multidivisional Hypothesis," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 106-122, Spring.
    2. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    3. Steer, Peter S & Cable, John R, 1978. "Internal Organization and Profit: An Empirical Analysis of Large U.K. Companies," Journal of Industrial Economics, Wiley Blackwell, vol. 27(1), pages 13-30, September.
    4. Kirk Monteverde & David J. Teece, 1982. "Supplier Switching Costs and Vertical Integration in the Automobile Industry," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 206-213, Spring.
    5. Neil M. Kay, 1984. "The Emergent Firm," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-17517-8, December.
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    Cited by:

    1. Merkert, Rico & Cowie, Jonathan, 2012. "A quantitative cross-modal analysis of transportation firms’ transaction costs – Are airlines any different?," Journal of Air Transport Management, Elsevier, vol. 22(C), pages 3-8.
    2. Merkert, Rico, 2010. "Changes in transaction costs over time - The case of franchised train operating firms in Britain," Research in Transportation Economics, Elsevier, vol. 29(1), pages 52-59.
    3. Michael Dietrich, 2005. "Using simple neural networks to analyse firm activity," Working Papers 2005014, The University of Sheffield, Department of Economics, revised Jul 2005.
    4. Michael Dietrich, 2003. "Giant Firms in the Information Economy," Working Papers 2003006, The University of Sheffield, Department of Economics, revised Dec 2003.

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