ACCT3206 Lecture Notes - Lecture 1: Iron Ore, W. M. Keck Observatory, Transaction Cost
Document Summary
Lecture 2: transaction cost economics: the main take away from this lecture is that there are three important governance structures that are used through the buying and selling process between suppliers and buyers. These are market, asset specificity and long-term contract. An organisation is also another aspect: markets, price is determined by supply and demand. Markets make sure that everyone is behaving efficiently: there are two components with the price. It captures the information in the market and provides incentives. In the scenario used with the miner of iron ore: the mining company is the supplier and the manufacturing companies being the buyer. In regard to information, if one mining company finds a new mine of iron ore, it could decrease price and increase supply: these companies do not need to know about. If there is a change in one supplier, the price will adjust and everyone else in the market will have to adjust as well.
